No. 2 TV station operator Nexstar Media Group Inc.
Nexstar on Dec. 3 agreed to buy all outstanding shares of Tribune for $46.50 per share in a cash transaction valued at $6.4 billion, including the assumption of Tribune Media's outstanding debt. Nexstar CEO Perry Sook said during a call with analysts that the combination will create "the largest local television broadcaster and local media company with approximately $900 million of average annual free cash flow into 2018-2019 cycle."
The deal comes less than four months after the termination of a previous merger agreement between Tribune and Sinclair. That earlier deal fell apart after the U.S. Federal Communications Commission unanimously voted in July to refer the proposed transaction to an administrative law judge amid concerns about misrepresentation and lack of candor. Tribune ultimately terminated the agreement and filed a lawsuit against Sinclair in August, alleging that Sinclair did not expeditiously deal with regulatory hurdles. Sinclair countersued, claiming that Tribune breached the contract because the company did not faithfully try to execute the deal. Nexstar had been interested in buying Tribune prior to Sinclair's failed offer.
Nexstar CEO Sook said Dec. 3 that the company had identified certain television station divestitures that will be necessary to obtain FCC and other regulatory approvals. He expects to close the Tribune transaction by the end of the third quarter of 2019.
"We have the highest level of sensitivity to the regulatory approval landscape, and we expect to work expeditiously and in cooperation with regulators and counsel to bring the transaction over the finish line," Sook said. He added that the company is keeping in mind both local and national ownership limits. The FCC's media ownership rules traditionally limit the number of stations a single entity can own in any given market, while a national ownership cap set by Congress prohibits a single broadcast station group from owning TV stations that add up to more than 39% of U.S. TV households.
"I've already spoken to FCC Chairman [Ajit] Pai this morning to assure him that we have a comprehensive plan developed for compliance with regulatory requirements," Sook said, adding that the company plans to meet soon with both the FCC and the U.S. Department of Justice.
In terms of the deal's advantages, Sook said Tribune brings to Nexstar a diverse portfolio of media assets, including 42 owned or operated broadcast television stations in major U.S. markets. "Tribune also advances Nexstar's growing digital opportunity to increase scale, offerings and reach, which will allow us to bring our successful digital strategy to even more markets," the CEO said.
Rose Oberman, an analyst at S&P Global Ratings, said in an interview prior to the deal announcement that marketplace perception holds that scale is necessary to compete in a media ecosystem that has expanded beyond TV stations, as companies must also now vie for consumer attention with subscription video-on-demand players and other time-shifted viewing forms.
With increased scale comes opportunities around spectrum holdings, continued gains with retransmission-consent fees, as well as perhaps higher and more consistent levels of political advertising. Tribune is expected to finish 2018 with a record $172 million in net political ad sales. "We may be seeing the start of an always-on political cycle," Tribune CEO Peter Kern said on the company's third-quarter earnings call, adding: "Even in off-cycle years, it's quite possible we will see meaningful increases in political advertising."
Oberman believes other transactions beyond the Nexstar/Tribune tie-up are taking shape as well, pointing to 14 stations that Cox Enterprises Inc. is looking to sell and to the FOX regional sports networks that are on the block as a condition for U.S. Department of Justice giving its approval to Walt Disney Co.'s purchase of myriad 21st Century Fox Inc. assets.
RBC Capital Markets analyst Leo Kulp also sees more broadcast M&A coming down the pike. In a research note issued prior to the deal announcement, Kulp said a Tribune transaction could be the first of several deals around the broadcast space in coming months, pointing to press reports indicating that the Cox sale process is well underway with several first-round bidders, including Nexstar, E.W. Scripps Co. and Meredith Corp.
He also believes TEGNA Inc. is likely to be looking to do a deal with a midsize broadcast group. As to Sinclair, he believes its focus is on buying the FOX regional sports networks.
Justin Nielson — an analyst at Kagan, a media research unit within S&P Global Market Intelligence — said in an interview that he sees Sinclair as interested in the FOX RSNs, but would not be surprised if the broadcast giant also turns its attention to Cox or any stations divested as part of the Nexstar/Tribune deal.
According to Sook, there are 15 markets where Nexstar and Tribune both operate stations. Thirteen of those 15 will likely require divestitures. "We will be divesting some assets there to comply with both the DOJ and the FCC," Sook said.
The CEO added that Nexstar has already received reports of interest in the stations to be sold. "So we think it will be a robust process," Sook said.
