Gannett Company (GCI) Buys Belo Corp. (BLC) for $2.2 Billion
Gannett Company (GCI), the largest U.S. newspaper publisher by daily circulation, recently rose then plunged on mixed outlook regarding its abrupt $1.5 billion purchase of Belo Corp. (BLC), which owns 21 local television stations across the United States. This acquisition more than doubles Gannett's portfolio of television stations to 43. Gannett Company is most recognized by its national newspaper, USA Today, and its weekly USA Weekend.
It also owns local papers, such as The Arizona Republic, The Indianapolis Star, The Cincinnati Enquirer, the Tennessean, and The Courier-Journal in Louisville, Kentucky, among others. Daily Chart
At $1.5 billion, Gannett is paying a 28% premium on Belo shares, at $13.75 each. In addition to the $1.5 billion in cash, Gannett must assume $715 million in Belo's debt, which pushes the total value of the deal to roughly $2.2 billion. Prior to the deal, Gannett's TV arm was already the largest owner of Comcast's (CMCSA
) NBC-affiliated stations. After the deal closes, Gannett will also become the largest owner of CBS affiliates and the fourth-largest owner of ABC affiliates. In other words, Gannett will become the biggest name in local television in the nation. This is a shrewd move to escape the fate of industry peers The New York Times (NYT
) and The Washington Post (WPO
), which have been weighed down by declining sales of their print editions, which have translated to plunging ad revenue. The Washington Post has notably been propped up by its investments in local television affiliates, and it appears that Gannett is taking that strategy to a whole new level. Gannett CEO Gracia Martore touted the strength of the deal, stating, "We are thrilled to bring together two highly respected media companies with rich histories of award-winning journalism, operational excellence and strong brand leadership. We have been successfully transforming Gannett into a diversified multi-media company with broadcast, digital and publishing components across high-growth markets nationwide, and this is another important step in the process." Although the acquisition would make Gannett the undisputed leader of local television, the deal is still subject to FCC approval, antitrust approval and an approval by two-thirds of Belo's voting shareholders. The fact that Gannett currently only has $142.8 million in cash and equivalents and $1.45 billion in debt is also worrisome. Gannett's $2.2 billion takeover is a massive bet that could sink the company if it doesn't become earnings accretive in a timely manner. From a fundamental perspective, Gannett is undervalued at 10.1 times forward earnings with a 5-year PEG ratio of 1.4. It also pays a hefty 4% quarterly dividend. However, investors should see what happens over the next few quarters with the Belo acquisition and the business of local affiliates in general before pulling the trigger on this one. Other News About GCI Gannett to Buy Belo TV Stations in $2.2 Billion Deal
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Published on Jun 20, 2013
By Leo Sun