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Nexstar Media Group Vaults Into TV’s Big League With Tribune Media Acquisition

Texas-based Nexstar Media Group is poised to become the nation’s largest owner of TV stations after setting a $4.1 billion deal to acquire Tribune Media, which will take the company into New York, Los Angeles, Chicago and other large markets for the first time.

The all-cash deal covers Tribune’s 42 stations — including WPIX-TV New York, KTLA-TV Los Angeles, WGN-TV Chicago — and the WGN America cabler. Nexstar, based in Irving, Texas, will become a broadcast colossus with more than 200 stations with the Tribune outlets included. Nexstar already owns 170 stations covering nearly 39% of U.S. TV households. Nexstar said the deal had a total transaction value of $6.4 billion including the assumption of Tribune’s debt.

Nexstar outbid private equity giant Apollo Global Management with an all-cash offer valuing Tribune at $46.50 per share. The sale comes about four months after Tribune’s previous acquisition pact with Sinclair Broadcast Group imploded amid regulatory hurdles and political controversy given Sinclair’s size and the notably partisan tilt to the company’s political opinion and commentary programming and the tenor of its newscasts.

Nexstar’s transaction will also face stiff regulatory scrutiny and require divestitures to comply with the FCC’s TV station ownership rules. The company, founded in 1996 by Perry Sook who remans president-CEO, has been one of the most acquisitive broadcast groups in recent years. Of the 118 markets served by the combined company, Nexstar identified 15 markets of significant overlap with Tribune holdings. The company said it would quickly present a plan to the FCC for divestitures in 13 of those overlap markets.

“Nexstar has long viewed the acquisition of Tribune Media as a strategically, financially and operationally compelling opportunity that brings immediate value to shareholders of both companies. We have thoughtfully structured the transaction in a manner that positions the combined entity to better compete in today’s rapidly transforming industry landscape and better serve the local communities, consumers and businesses where we operate,” Sook said in announcing the deal. “As with our past transactions, we have developed a comprehensive regulatory compliance plan and believe we have a clear path to closing. With committed financing and a plan for significant synergy realization that will result in only a minimal increase in Nexstar’s pro-forma leverage, the combined entity will be poised for growth, leverage reduction and increased capital returns for shareholders.”

Nexstar said the sale price marked a 15.5% premium to Tribune’s closing price on Nov. 30, and a 45% spike over Tribune’s closing price on July 16, the day the FCC made it clear that the Sinclair pact would not be completed without another long slog through a regulatory hearing.

The combined Nexstar and Tribune will have revenue of $4.6 billion and earnings of $1.7 billion, Nexstar said. The deal also encompasses Tribune’s 31% stake in cabler Food Network, now owned by Discovery.

Sook told investors he expects the transaction to close in the third quarter of 2019. Nexstar has targeted $160 million in synergy savings in the first year after the completion of the deal.

Tribune Media CEO Peter Kern emphasized that the Nexstar pact will provide Tribune’s shareholders “with substantial value and a well-defined path to closing. Together with Nexstar we can better compete by delivering a nationally integrated, comprehensive and competitive offering across all our markets,” he said. “We believe this combination will produce an even stronger broadcast and digital platform that builds on the accomplishments of both companies and benefits our viewers and advertisers.”

The deal comes with a safety net for Tribune in requiring the price tag to climb by 30 cents per share per month if the transaction is not closed by Aug. 31, 2019.

Fox is expected to pursue the purchase of at least seven Fox affiliates as part of Nexstar’s divestiture process. Fox had planned to buy Tribune-owned Fox affiliate stations in Seattle, Denver, Miami, Cleveland and other mid-sized markets for $910 million from Sinclair had that company closed its Tribune takeover.

Industry sources said Fox is expected to try to pick up number of other Nexstar-Tribune affiliates as the enlarged company will rival Sinclair as an owner of Fox affiliates, giving Nexstar significant sway over a good chunk of the broadcast distribution of Fox Broadcasting Co. With Fox poised to sell off its studio and entertainment cable channels to Disney, the new iteration of Rupert Murdoch’s empire will be largely focused on Fox Broadcasting, Fox News and Fox Sports. A source said Fox was already eyeing stations that the enlarged Nexstar will own in Indianapolis and in Kansas City, Mo.

In a memo to Tribune staffers, Kern acknowledged that the company has been on a bumpy ride since May 2017 when it first set its sale agreement with Sinclair.

Here is Kern’s full memo:

Early this morning, we announced that Tribune Media entered into a merger agreement with Nexstar Media Group under which Nexstar will acquire Tribune, paying $46.50 per share for a total transaction value of $6.4 billion. This combination will create the preeminent local broadcast company — one that will have greater scale and more resources to serve all the communities in which we operate. Together, we’ll have much more flexibility to navigate the huge changes taking place in media and continue the trajectory of growth that both companies have established.

I recognize that this is the second time around in quick succession for most of us. But thanks to your efforts, we are in a very strong position strategically and financially. Last time we were here, almost 19 months ago, I challenged you to ignore all the noise and deliver your best performances. You met this challenge and as a result, we overcame that failed attempt and performed incredibly well this past year – and that, I can tell you, is a rare thing. You helped make this transaction possible and you should be very proud of what you have accomplished. On behalf of our Board, thank you.

Nexstar has, in its own right, been a remarkable success story. Launched in 1996 with just one television station, WYOU in Scranton, PA, today it is one of the nation’s largest local TV operators. The company now runs 171 stations delivering high-quality news, sports and entertainment content to 100 markets across the country. For Tribune employees, the breadth of Nexstar’s operations offer a great opportunity for professional development and advancement.

Like Tribune, Nexstar recognizes the importance of being “local” as one of its core values and prioritizes the production of high-quality local news. Once joined together, the combined company will produce almost 300,000 hours of local news and content. That commitment to being local is also apparent in Nexstar’s “Founder’s Day of Caring,” when employees in all 100 of the company’s markets receive paid time off to volunteer in their community. A great program in which I know we will be enthusiastic participants.

We look forward to working with Nexstar to achieve regulatory approval as expeditiously as possible and rest assured we have a clear understanding on how to do just that. We hope to close this transaction by the third quarter of 2019. Until then, we remain an independent company with ambitious plans. I know I can count on you to deliver the same outstanding work you have this past year and advance our goals despite this pending transaction.

I’m sure you have questions about today’s announcement and it is completely appropriate to be thinking first about what this all means to you – so we have planned a town hall meeting today at 3:15 p.m. ET. I will discuss the transaction and take your questions.

See you then,

Peter

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