Monday was a big day for Tribune Media Company (NYSE: TRCO). Nexstar Media Group (NASDAQ: NXST) agreed to buy Tribune Media’s outstanding shares at $46.50 each in an all-cash transaction worth $6.4 billion. As part of the deal, Nexstar will take on Tribune Media’s outstanding debt. The deal will be financed through Bank of America Merrill Lynch, Credit Suisse and Deutsche Bank. The boards of directors of both companies have both agreed to the deal which is expected to close in the third quarter of 2019, provided the acquisition agreement receives all the necessary regulatory approvals.
In the official announcement, Tribune Media stated that shareholders are getting a 15.5 percent premium over Friday’s stock price of $40.26 and a 45 percent premium over the company’s stock value of $32.12 on July 16, 2018, the day the FCC said it was sending the proposed Sinclair Broadcasting-Tribune merger to a third-party judge for consideration.
According to Nexstar’s website, the 22-year-old company owns 171 TV stations, 114 local website and 202 local mobile apps, reaching 38.7 percent of all U.S. households. In the investor presentation given Wednesday, Nexstar and Tribune said this merger will create the largest broadcast television group in the country. The combined company will grow to 216 stations in 118 markets, expanding and diversifying Nexstar’s geographical reach and scale. Other Tribune assets include a 31 percent interest in the TV Food Network (Food Network and the Cooking Channel), WGN and a 5 percent interest in the Chicago Cubs.
From a financial perspective, the merger will allow Nexstar to grow its average annual free cash flow in 2018/2019 to $900 million, representing growth of 46 percent, or $19.50 per share based on approximately 46.2 million outstanding shares of Nexstar stock.
The merger will also create $160 million in operating synergies during the first year:
- $20 million in savings from the reduction of corporate overhead
- $65 million in reductions from station expenses and support services, and the planned migration of revenue from a third-party-vendor
- $75 million in applying Nexstar rates to Tribune subscribers
“Nexstar has long viewed the acquisition of Tribune Media as a strategically, financially and operationally compelling opportunity that brings immediate value to shareholders of both companies,” said Perry Sook, chairman, president and CEO of Nexstar, on Monday.
“We have thoughtfully structured the transaction in a manner that positions the combined entity to better compete in today’s rapidly transforming industry landscape and better serve the local communities, consumers and businesses where we operate. As with our past transactions, we have developed a comprehensive regulatory compliance plan and believe we have a clear path to closing. With committed financing and a plan for significant synergy realization that will result in only a minimal increase in Nexstar’s pro-forma leverage, the combined entity will be poised for growth, leverage reduction and increased capital returns for shareholders,” Sook added.
Developing a “comprehensive regulatory compliance plan” and a “clear path to closing” were two things lacking in the proposed merger between Sinclair Broadcasting and Tribune Media that fell apart this summer. In that $3.9 billion merger, Tribune Media backed out of the deal in August because regulatory approval was questionable at best. Tribune Media and Sinclair are suing each other for breach of contract. Nexstar’s “clear path” includes divesting some of Nexstar’s television stations needed to comply with the FCC’s 39 percent cap on national TV ownership and the possible divesture of non-core assets.
Peter Kern, CEO of Tribune Media, also commented on the acquisition.
“We are delighted to have reached this agreement with Nexstar as it provides Tribune shareholders with substantial value and a well-defined path to closing. Together with Nexstar we can better compete by delivering a nationally integrated, comprehensive and competitive offering across all our markets. We believe this combination will produce an even stronger broadcast and digital platform that builds on the accomplishments of both companies and benefits our viewers and advertisers. The premium value our shareholders are receiving reflects the hard work of our dedicated Tribune employees in maximizing the value of our portfolio. I look forward to working closely with the Nexstar team to deliver on the value of this compelling combination and to ensure a smooth transition and integration of our companies,” said Kern in Monday’s announcement.
The last 18 months have been interesting for Tribune Media, including the failure of the Sinclair Broadcasting merger, its ditching of the Tronc name to rebrand itself under the Tribune name, the sale of key properties including the Los Angeles Times and the San Diego Union-Tribune and the retirement of Michael Ferro from then-Tronc’s board of directors. This new deal must be quite a relief to Tribune and an opportunity for the media company’s individual brands like the Chicago Tribune and WGN to get a fresh start with a well-capitalized company. It’s quite a good opportunity for Nexstar as well, broadening the company’s reach and expanding its long-term financial prospects.