Media Merger Mania
On Friday afternoon, after the market closed, news broke that Nexstar Media NXST 0.00%↑ was in advanced discussions to acquire TEGNA Inc. TGNA 0.00%↑. Once news broke, TEGNA’s stock price rocketed up 30% in after hours trading.
Over the past year I have written countless articles and posted many tweets why television broadcasters will end up combining, seeing multiples re-rating and attract outside capital. In one of my last articles, I highlighted TEGNA as a top position in my portfolio.
The new FCC Chairman, Brendan Carr is pro deregulation.
Deregulation in the broadcast industry will spark a wave of M&A we haven’t seen in decades.
Well capitalized players will acquire as many stations as possible from the less well capitalized as incremental margins are 30-50% from cost cutting surgeries.
The industry will eventually consolidate to 1-2 big players, and the FCC, for the first time, will potentially allow this event to happen.
Broadcasters remain in value territory, trading at 4-5x EBITDA.
Owning a basket of broadcasters could potentially result in portfolio outperformance.
Since Brendan Carr has taken his seat at the head of the FCC, the wave of M&A has started, and is only likely to continue.
Here are a few events that have already transpired:
Gray Media:
Acquired KXLT-TV (FOX, Rochester, MN) from SagamoreHill — FCC granted waiver & approved March; closed late March.
Announced acquisition of WLTZ (NBC, Columbus, GA) and KJTV (FOX, Lubbock, TX) — July 31; pending FCC approval.
Announced purchase of Block Communications stations — $80M for WDRB (FOX) & WBKI (CW) Louisville, WAND (NBC) Springfield/Champaign/Decatur, WLIO (NBC) Lima + LPTVs — August 1; closing expected Q4.
Announced station swap with E.W. Scripps — July 7; Gray gets WSYM (FOX) Lansing & KATC (ABC) Lafayette; Scripps gets KKTV (CBS) Colorado Springs, KKCO (NBC) & KJCT-LP (ABC) Grand Junction, KMVT (CBS) & KSVT-LD (FOX) Twin Falls — closing expected Q4.
Announced acquisition of 10 Allen Media Group stations — $171M; adds Columbus-Tupelo, MS; Terre Haute, IN; West Lafayette, IN; creates new duopolies in seven other markets — August 8; expected Q4 close.
Nexstar Media Group
In advanced talks to acquire TEGNA — reported August 8; no signed deal yet; terms undisclosed.
Rincon Broadcasting Group
Closed $29.4M purchase from Sinclair of WVTV (Milwaukee), WICD & WICS (Champaign–Springfield–Decatur), KHQA (Quincy/Hannibal/Keokuk), KTVO (Ottumwa/Kirksville).
Closed acquisition from Imagicomm Communications of KAYU (Spokane), KFFX (Pendleton), KCYU (Yakima), KYMA (Yuma), KOKI & KMYT (Tulsa), WHBQ (Memphis).
Sinclair Broadcast Group
Announced July 22 acquisition of non-licensed assets of WDKA (Paducah, KY) & KBSI (Cape Girardeau, MO) with option to acquire licenses.
The deals that have been announced so far were pretty marginal. Gray was doing station swaps with EW Scripps and taking out small stations in challenging markets. The head turning one was the Allen Media acquisition that Gray announced last week right after they put out their earnings. And then, news was leaked that Nexstar was in advanced talks to acquire TEGNA.
The Nexstar/TEGNA merger is major news for the industry. This will push the FCC to make an important decision on if large scale acquisitions in the industry will be allowed. If the FCC green lights the merger, I expect Media Merger Mania will begin. The capital markets will open up, station swaps will happen on a monthly basis and valuations will get lifted.
In the article below, I will go into my personal thoughts on how I think mergers will play out between all of the public players: Nexstar, TEGNA, Sinclair Broadcasting, E.W. Scripps, Gray Media, Entravision Communications and Mediaco. I also highlight what price I think TEGNA will accept a deal from Nexstar and why this valuation makes sense.
I am long most of these players and broadcast assets remain a key pillar to my current portfolio.
I hope you enjoy…