Media

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

The biggest U.S. TV station operator just put out a for-sale sign, and it's not hard to puzzle out why. 

Tribune Media, which runs 42 local broadcasting outlets , announced Monday that it's exploring strategic options including asset sales. The news sent the Chicago-based company's stock up as much as 12.4 percent, the biggest intraday gain since it emerged from bankruptcy and a sharp contrast to recent trading days. 

Stocks of broadcasting companies -- including Tribune Media -- have been slammed by both a broader equity rout and concerns that growing hordes of cord-cutting millennials could mean lower advertising sales and affiliate fees. The $3.3 billion company's results, released concurrently on Monday, didn’t do much to appease those worries. The M&A market, however, remains very much alive as station operators seek more bargaining leverage with cable providers and programmers.

Broadcaster Media General, for example, was the subject of a several-month takeover battle between Nexstar and magazine publisher Meredith Corp. before it ultimately agreed in January  to sell to Nexstar. The purchase price of $17.14 in cash and stock (or about $4.5 billion including debt  ) isn't far off from Media General's high in the year leading up to Nexstar's approach. For shareholders, that means the losses incurred amid the latest round of market turmoil were essentially wiped away.  

Restoring Value
After slumping amid cord-cutting worries, Media General secured an attractive price from Nexstar.
Source: Bloomberg

Tribune Media is hoping to erase some of its own shareholders' losses. After emerging from bankruptcy at the end of 2012, the company spun off its newspaper business, Tribune Publishing, in 2014. The breakup was meant to free Tribune Media's stock price from the weight of a sagging newspaper business. That didn't happen. As of last week, the stock was down about 61 percent since the split.

Tribune Media has tried to help itself by drawing more viewers to its WGN network, but rising revenue has come at the cost of higher programming expenses and weaker margins, according to Bloomberg Intelligence. And even with the investments, it's not clear that WGN carries enough clout to be included in the smaller packages of channels that cable operators are moving toward.

Not Much To Smile About
Tribune Media shares have lost close to $5 billion in value since the spinoff of Tribune Publishing.
Source: Bloomberg

Meanwhile, as its broadcasting peers buy their way to growth and scale, Tribune Media's already big size prevents it from doing deals. The company's TV stations cover 44 percent of the U.S. population -- already above the limit allowed by the Federal Communications Commission (Tribune Media was grandfathered into its coverage). So if you can't buy, selling businesses may be the best way to earn back some of the stock's lost value.  A buyout of the whole company may be ideal for shareholders, but again, its size may be a problem.

Spending Spree
Media companies have spent billions on U.S. TV, broadcasting and multimedia assets as scale becomes increasingly important.
Source: Bloomberg

Media companies have spent more than $40 billion on U.S. TV and broadcasting targets in the last five years and that's left many of them bumping up against the FCC restraints on station ownership and thus, out of the running for a Tribune Media deal. But there is at least one buyer in the market for broadcasting assets: Meredith. After getting shut of out the deal with Media General, Meredith is on the hunt for other opportunities to build out its broadcasting operations as it weighs an eventual split with its publishing business.

In exchange for walking away from the Media General merger, Meredith got the right to a first look at some broadcast and digital assets that Media General could put on the block to help get regulatory approval for the Nexstar deal. CEO Stephen Lacy told Bloomberg TV earlier this month that his company has plenty of firepower (plus a $60 million breakup fee from Media General) to jump on other deals. And here's one all tied up with a bow, with stations in some of the biggest U.S. markets.

With an enterprise value of $6.5 billion, Tribune Media would be a bigger target and require a heftier debt load than Media General. But Tribune Media says the options it's considering include the sale or separation of certain assets, strategic partnerships and programming alliances -- all of which may be attractive and more financially palatable for Meredith than a full-blown merger.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Tribune is the biggest U.S. operator of broadcast stations by coverage.

  2. Nexstar's proposal also includes a contingent value right to account for proceeds Media General receives in the Federal Communications Commission's auction of airwave rights. 

  3. Tribune Media has already announced plans to sell Chicago's Tribune Tower and a block of its Los Angeles Times Square property. It's considering selling other real estate, the company said Monday. 

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net