Tribune Co., doubling down on the broadcast television biz, announced an agreement to acquire Local TV Holdings’s 19 TV stations in 16 key markets for $2.725 billion in cash — a deal that would make Tribune one of the biggest TV station owners in the U.S.
With the deal, Tribune’s local TV footprint will increase from 23 to 42 stations across the U.S., in markets including New York, Los Angeles, Miami and Seattle. Chicago-based Tribune emerged from Chapter 11 bankruptcy last year.
Deal comes less than three weeks after Gannett Co. announced $2.2 billion acquisition of Belo Corp., similarly expanding Gannett’s station count from 23 to 43.
Tribune said the bigger scale will give it new opportunities for national and local advertising, and also lead to “more meaningful conversations” with cable, satellite and telco TV providers about distribution. Company said it hopes to expand reach of WGN America and the announcement also signals that Tribune plans to more aggressively seek higher retransmission fees.
“This is a transformational acquisition for Tribune,” Peter Liguori, Tribune prexy and CEO, said in a statement. “It makes us the No. 1 local TV affiliate group in America, expands the distribution platform for our high-quality video content, and extends the reach of our digital products to new audiences across the country.”
Liguori, previously Discovery Communications COO and head of entertainment at Fox Broadcasting, joined Tribune in January 2013 with a strategy of bulking up the company’s TV portfolio.
Local TV is principally owned by Oak Hill Capital Partners. The transaction has been approved by the boards of both companies and is expected to close by the end of 2013, subject to antitrust and Federal Communications Commission approvals and other closing conditions.
Tribune’s deal for Local TV would be largest since its $8 billion merger in 2000 with Times Mirror, whose assets included the Los Angeles Times.
Post-transaction, Tribune’s broadcast portfolio would include 14 CW affiliates, 14 Fox affiliates, five CBS affiliates, three ABC affiliates, two NBC affiliates and four independents. Tribune will own 14 stations in the country’s top 20 markets and will become the top Fox affiliate group. Local TV will give Tribune additional stations in markets including Denver, Cleveland, St. Louis, Kansas City, Salt Lake City and Milwaukee.
According to Tribune, the deal will generate “significant” free cash flow and be immediately accretive to earnings. Tribune anticipates the combination with Local TV will result in more than $100 million in annual run-rate synergies within five years after closing.
In addition to local TV stations, Tribune’s properties include superstation WGN America — currently distributed to about 70 million U.S. households — as well as Tribune Studios, Tribune Digital Ventures and its eight major-market newspapers, including the Chicago Tribune and L.A. Times.
Tribune will finance deal through a combination of debt financing and a portion of its cash on hand. Company said it has received committed financing of up to $4.1 billion from JPMorgan Chase, BofA Merrill Lynch, Citigroup, Deutsche Bank and Credit Suisse. That includes a new $300 million revolving credit facility and the capacity to allow Tribune to refinance its existing debt.
Tribune said the deal for Local TV is being structured to deliver a step-up in the tax basis of the acquired assets. According to the companies, the effective purchase price multiple on a pro-forma basis is approximately seven times 2011 and 2012 average EBITDA (earnings before interest, tax, depreciation and amortization).
Guggenheim Securities acted as financial advisor to Tribune, and Debevoise & Plimpton and Covington & Burling acted as legal advisors to Tribune on the transaction. Moelis & Co., Wells Fargo Securities Deutsche Bank Securities were financial advisors to Local TV, and Dow Lohnes acted as legal advisors.