Ialso consider it vital to clarify the deal and perhaps explain why Beloistrading above its purchase price of $13.75 as many retail investors maybe pilinginto a stock that has a firm ceiling that it would be able to climbabove.
BELO Corporation was, essentially the largestpure-play publicly-traded television station company in the nation. TheCompanyowns and operates twenty major television stations, including ABC, CBS,NBC,FOX, CW and MyNetwork TV affiliates reaching over14 percent of U.S.television households,and their associated Web sites, in 15 highly-attractive markets acrosstheUnited States. Belo stations rank firstor second in nearly all of their local markets.
Gannett Co., Inc.operates 22 televisionstations in the United States and is an international news andinformationcompany that publishes daily including USA TODAY, the nation'slargest-sellingdaily newspaper. The company also owns in excess of 400 non-dailypublicationsin the USA and USA WEEKEND, a weekly newspaper magazine. Gannett’ssubsidiaryNewsquest is the United Kingdom's second largest regional newspapercompany.
Gannett will acquire all outstanding sharesof Belo for $13.75 per share in cash, or approximately $1.5 billion,plus theassumption of $715 million in existing debt for an enterprise value ofapproximately$2.2 billion.
According to a recentpress release by Gannett,the combination of Belo and Gannet will create a broadcast "SuperGroup," catapulting Gannett into the nation's fourth-largest owner ofmajor network affiliates reaching nearly a third of all U.S.households.
After the deal iscomplete, Gannett's broadcastportfolio will almost double from 23 to 43 stations, including stationsto beserviced by Gannett through shared services or similar sharingarrangements. Gannett'snew broadcast segment will have greater geographic and revenuediversity, with21 stations in the top 25 markets and will become the #1 CBS affiliategroup,the #4 ABC affiliate group, and will expand its already #1 NBCaffiliate groupposition.
The transaction isexpected to close by theend of 2013 and will be subject to antitrust approval.
Isit Worth Your Investment?
Belo is already trading above the $13.75 cashacquisition price, after sharply rising after the merger announcementlastmonth. If gannet was utilizing a stockfor stock acquisition method, then shares of BLC could continue to riseif GCIstock increases as there would be a quantifiable connection between thetwo,but with this being an all cash deal, that’s not the case.
Given the premium tooffer, you shouldprobably avoid the stock (BLC) here as its upside will be limitedunless ofcourse you’re a merger arbitrage specialist. Gannett, on the other hand, stands to gain potential appreciation fromhere. While it’s only a Zacks Rank #3now, that could change as the deal comes to an end.
Before theannouncement, both companies wereon the right earnings trajectory as of late as estimates were on therise, butboth were seeing year over year growth contraction. Bothcompanies were looking for moderateearnings growth in 2013, on a slight decline in revenues.
There is no doubtthat investors like theprospects of the combined entity as both stocks rallied sharply on thenews.
The company alsobelieves that this is awin-win; they anticipate that the transaction will generateapproximately $175million in annual run-rate synergies within three years afterclosing. The transaction is additionally expected togenerate significant free cash flow and be accretive to non-GAAPearnings pershare by approximately $0.50 within the first 12 months.
The transactionvaluation implies a 9.4xaverage 2011/2012 EBITDA multiple prior to synergies, and a 5.4xmultipleassuming expected synergies (according to Belo).
Mark Fratrik, a vicepresident and chiefeconomist for BIA/Kelsey believes that this deal could propel Gannettintobecoming the number 3 local station owner in the United States, byrevenue. News Corporation ranks first with 27stationsand CBS Corporation, which owns 29 stations, is currently number 2.
This deal goes beyondthe local news. Gannett is invested heavily in advertizingsignage and perhaps most importantly, internet properties(websites). The acquisition of Belo will continue to addpricing and a competitive edge to Gannett’s franchise.
While you might notget your local newspaperdelivered by the paperboy anymore, trusted information and qualityjournalismwill never go the way of the Dodo.
If you are going tobuy either company, lookto GCI for the longer term play despite the Zacks Rank of 3 as sharesof Belo shouldn’tbe going much higher from here. You might also wait for amove back into the $24.00 range for GCI as shares are slightlyoverboughthere.
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