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Nexstar considering additional station buys following Tribune deal completion

With the closing of its deal for Tribune Media Co. now officially in the books, Nexstar Media Group Inc. already has its eye on other opportunities within the TV station sphere.

Through the closing of the transaction on Sept. 19, Nexstar has supplanted Sinclair Broadcast Group Inc. as the nation's largest operator of TV stations. With 197 full-power stations, Nexstar is now in 43 states, operating in 15 of the nation's top 25 markets and 34 of the top 50.

Perry Sook, Nexstar president, chairman and CEO, told analysts on a Sept. 20 call discussing the deal's closing that the Tribune buy increases the company's audience reach by approximately 50%. Nevertheless, CFO Thomas Carter said on the call that Nexstar continues to see "meaningful opportunities for continued growth and accretion from M&A." He noted that the company has had many conversations related to its assets, and he expects the company to continue to refine its portfolio to maximize value.

Sook said the M&A opportunities are primarily for in-market growth, adding that Nexstar would have to sell an asset to create space to add another geography.

"There's no specific portfolio objective in mind other than if this is accretive to our current results and it's more accretive than buying back stock, then those would be deals we would be inclined to do," he said.

Nexstar does not share the same enthusiasm about cable networks.

"We like the local piece of the media ecosystem," said Sook. "The national piece has a lot more headwinds, we think, whether it's distribution or audience."

Although local television will remain the primary focus, Sook said Nexstar is going "to operate WGN America (US) aggressively until or unless somebody makes us an offer we can't refuse." Sook said that with the addition of originals — including "Dog's Most Wanted," a new reality series from bounty hunter Duane Chapman — WGN America is performing well. He applauded network management, saying they had turned the channel around over the past two years from a money-losing asset to one producing a nine-digit EBITDA contribution.

As to the 31% of Food Network (US) it now owns, Nexstar would be "happy to continue" holding onto that stake, Sook said.

The executives were also happy to report a number of key metrics from the transaction.

Nexstar said the combined entity will lead the sector with 2018-2019 net revenue of $4.20 billion, compared with $3.05 billion for Sinclair. The latter total excludes an estimated $3.80 billion in revenue from Sinclair's new portfolio of 21 regional sports networks.

Cost-savings synergies, originally forecast to be $160 million in the first year of the deal, will likely climb to $185 million.

The company is also now expected to realize a 50% jump in pro forma average free cash flow to $900 million over 2018-2019 from legacy Nexstar. Moreover, its projection now calls for a nearly 60% advance to $1.02 billion for 2019-2020. That level of accretion is why Sook said Nexstar views the Tribune transaction as the best it has done over its 23 years.

Relative to the divestiture deemed necessary in order to secure U.S. Federal Communications Commission and U.S. Department of Justice approval for the transaction, Nexstar "took a tactical, strategic and economic approach to identifying, marketing and ultimately selling a total of 21 stations in 16 markets," according to Sook.

The sales to E.W. Scripps Co. TEGNA Inc. and Circle City Broadcasting I Inc. generated some $1.30 billion dollars, a total exceeding Nexstar's initial estimate by over 30%, while the divested cash flow, inclusive of the elimination of certain synergies, is less than its original projections. Those factors contributed to the company's increase in free cash flow expectations.

Nexstar also said the better returns from the station divestitures, favorable financing terms and recent operating results resulted in a pro forma net leverage ratio at closing of 4.6x, compared to its prior estimate of 5.1x. The company expects its net leverage to decline to less than 4x by year-end 2020.