Gannett to Buy Belo for $1.5 Billion, Expands Broadcast Arm
Gannett, the largest newspaper chain in the United States, agreed to pay $1.5 billion in cash for television company Belo, with an aim to making broadcast a bigger part of the business than newspapers.
The deal represents a 28.1 percent premium to Belo's closing price on Wednesday. It would almost double Gannett's broadcasting assets, making it the fourth-largest U.S. owner of major network affiliates, reaching nearly one-third of U.S. households, the company said on Thursday.
If the deal is approved, Gannett's broadcast segment would contribute more than half of the company's pro-forma earnings before interest, tax, depreciation and amortization while its digital and Broadcast segments combined were expected to contribute nearly two-thirds.
The transaction's cash portion values Belo at $13.75 per share. Gannett, the owner of USA Today - one of the country's biggest newspapers - will also assume $715 million in debt, giving TV company Belo an enterprise value of $2.2 billion.
Shares in both companies rose on the news and Gannett said it would generate significant free cash flow and increase its non-GAAP earnings per share by about 50 cents in the first year. It will also result in about $175 million of annual savings within three years after closing.
Gannett's shares were up 23.7 percent in premarket trading at $24.55 after closing at $19.85 on the New York Stock Exchange. Belo's shares soared 27 percent to $13.64 after closing at $10.73, also on NYSE.
Bill Smead, chief investment officer of Smead Capital Management, which lists Gannett as its third-biggest holding, said the purchase was good news for Gannett shareholders.
"With one-third of the country covered by their TV stations, no automaker or auto dealer can ignore their power in the U.S. This is an undervalued company and even more undervalued with an additional 50 cents per share in earnings the first year," Smead said via an emailed statement.
Belo owns and operates 20 television stations, with nine in the top 25 markets, and their associated websites.
The deal, which is expected to close by the end of 2013, will need antitrust approval, Federal Communications Commission (FCC) approval, and approval by holders of two-thirds of Belo shares, Gannett said.
It said Belo's directors and executive officers, who collectively own about 42 percent of the voting power of Belo's outstanding shares, have already agreed to vote in favor of the deal. Gannett expects to finance the purchase through cash on hand and accessing capital markets as well as bank financing.
J.P. Morgan Securities is provided financial advice and Nixon Peabody and Paul Hastings were legal advisers to Gannett while Belo's financial adviser was RBC Capital Markets and Wachtell Lipton Rosen & Katz acted as its legal adviser.
Gannett paper USA Today is a partner of CNBC.com.