Gannett's headquarters in McLean, Virginia.(Photo: Denny Gainer)
By Roger Yu and Kim Hjelmgaard, USA TODAY
Gannett Co., the diversified media company that owns USA TODAY and TV
stations, said Thursday it will buy competitor Belo Corp. for $2.2
billion in a deal that will make Gannett the fourth largest owner of
major network affiliates in the U.S., reaching nearly a third of U.S.
Gannett will acquire all outstanding shares of Belo
for $13.75 per share in cash, or about $1.5 billion, and assume $715
million in existing debt.
The transaction, which has been
unanimously approved by the boards of directors of both companies,
represents a 28.1% premium to the closing price of Belo common stock on
Shares of Gannett (GCI) jumped as high as 29% to an intraday high of $25.69 in Thursday morning trading. Belo shares (BLC) also spiked more than 27% to $13.69.
are thrilled to bring together two highly respected media companies
with rich histories of award-winning journalism, operational excellence
and strong brand leadership," said Gannett CEO Gracia Martore, in a
statement. "It will significantly improve our cash flow and financial
strength, enabling us to quickly pay down debt while remaining committed
to disciplined capital allocation."
The deal expands
Gannett's footprint nationwide, enabling the McLean, Va.-based company
to sell its various marketing and advertising services to local clients -
particularly small and mid-size businesses - in more markets.
a strategic standpoint, it's very good news for the company," said
Michael Kupinski, an analyst at Noble Financial. "It makes Gannett a big
player in the industry. Without acquisitions, they could have been
The acquisition nearly doubles Gannett's current
broadcast portfolio from 23 to 43 stations, including stations to be
serviced by Gannett through shared services or similar sharing
With 21 stations in the top 25 markets, Gannett
will become the largest CBS affiliate group and expand as the largest
NBC affiliate group. It'll also become the fourth largest ABC affiliate
group. "We become a true super group," Martore said, in a conference
call with analysts Thursday.
Gannett said it'll "restructure
ownership" of Belo stations in the five markets where Gannett also owns a
station. In an employee memo, Gannett said it'll provide support
services to stations Louisville, Phoenix, Portland (Oreg.), St. Louis
and Tucson, and added that these stations will be separately owned.
Other Belo stations will be fully integrated into Gannett's broadcast
division, led by Dave Lougee.
With the deal, the combined company
also owns a newspaper and a TV station in the Phoenix area. The Federal
Communications Commission's rules on cross-ownership prohibit a single
company from owning both.
Gannett currently derives more of its
revenue from the print business - 82 newspapers it owns nationwide -
compared to broadcasting and digital units. But after the transaction,
the broadcast segment is expected to contribute more than half of the
company's total earnings before interest, taxes and other items. The
digital and broadcast units combined are expected to contribute nearly
two-thirds, Martore said. It's a "significant shift in our business
mix," she said.
In the combined company, Belo would contribute
$680 million in revenue and $230 million in earnings before interest,
taxes and other items. The merger will result in about $175 million in
"synergies" in the next three years, largely from eliminating duplicate
functions and other cost of running two publicly traded companies and
more retransmission fees from cable operators made possible by enhanced
Gannett also expects "significant free cash
flow" and its earnings per share to rise by 50 cents in the first 12
months after the transaction closes.
Dallas-based Belo currently
owns and operates 20 TV stations - nine in the top 25 markets - and
their associated websites, including in Texas and the Pacific Northwest
where Gannett does not have a major presence.
Belo once owned
newspapers. But seeking to shelter its broadcast properties from the
fallout of declining print ad sales, Belo separated its TV business in
2008 by spinning off the newspaper unit into a publicly-traded company
called A. H. Belo Corp.
In addition to USA TODAY, Gannett owns regional newspapers, such as the Detroit Free Press and The Courier-Journal in Louisville, Ky.
in Gannett closed Wednesday at $19.85, up from $12.50 in July as the
company has aggressively pursued efforts to diversify its business
Gannett earned $104.6 million, or 44 cents per share, in
the January-March period. That was up from $68.2 million, or 28 cents
per share, a year earlier. Revenue grew 1.6% to $1.24 billion from $1.22