Sinclair Losing Belo Leaves Gray as Deal Option: Real M&AJeffrey McCracken, Leslie Picker and Brooke Sutherland
Sinclair Broadcast Group Inc. tried and failed to steal Belo Corp. from the clutches of Gannett Co., leaving Gray Television Inc. and Lin LLC as targets for the largest U.S. TV station owner.
Sinclair twice tried to top Gannett’s offer for Belo in the days before the shareholder vote, said people familiar with the matter, who asked not to be named because the process was private. Sinclair first sought to assemble a deal with various Belo shareholders, and then attempted to put together an offer with private-equity firm CVC Capital Partners Ltd., the people said. Neither effort led to a bid, they said, and Belo shareholders approved Gannett’s $1.5 billion offer on Sept. 25.
After missing out on Belo’s 20 TV stations, Hunt Valley, Maryland-based Sinclair may have to settle for alternatives. Gray, Lin and Raycom Media Inc. may be potential targets, said Paul Sweeney, a Bloomberg Industries analyst. In two years, Sinclair has announced $2.8 billion of deals as stations negotiate higher fees from cable systems. U.S. TV and broadcast deals have reached $8.7 billion this year, the most since 2007, according to data compiled by Bloomberg.
Sinclair was “one of the first in this wave of consolidation, and they’ve been pretty aggressive,” Barry Lucas, senior vice president of research at Rye, New York-based Gabelli & Co., said in a phone interview. “There’s enough fertile ground out there that Sinclair could find additional opportunity.”
Gabelli’s affiliate Gamco Investors Inc., which manages about $40 billion, holds stakes in Sinclair, Belo, Lin and Gray.
Sinclair Chief Financial Officer David Amy contacted large Belo shareholders, mostly hedge funds and arbitrage funds, on Sept. 19 to buy their Belo shares or to partner with them as part of the takeover effort, said one of the people. The Belo holders had for several weeks pressed to find another buyer willing to make a higher bid, and an offer was close to being arranged, said this person. The effort fell apart when one large Belo shareholder backed out, the person said.
Sinclair then tried to partner with London-based CVC on a bid that would have valued Belo at $15 a share, two of the people said, topping Gannett’s bid of $13.75. That arrangement also fell apart just before Belo investors voted on the Gannett offer, they said.
Belo was never formally contacted by Sinclair about a bid, one of the people said.
Sinclair’s Amy declined to comment on whether the company attempted to put together a competing bid for Belo. Paul Fry, a spokesman for Belo, declined to comment on the bidding process. Representatives for CVC and Gannett didn’t immediately respond to requests for comment.
Gannett investors applauded the Belo takeover, pushing Gannett shares up 34 percent the day of the June 13 announcement. Media General Inc., backed by Warren Buffett and Mario Gabelli, agreed the same month to a merger with New Young Broadcasting Holding Co.
On July 1, Tribune Co.said it was buying Local TV Holdings LLC’s 19 TV stations for $2.73 billion.
Sinclair has also taken part in the industry consolidation, agreeing to buy TV stations controlled by the Allbritton family for $985 million in July. During its spending spree in the last two years, Sinclair’s shares have risen more than 300 percent, giving the company a market value of $3.2 billion. Including pending deals, Sinclair has 162 TV stations, up from 58 two years ago.
Sinclair’s active role in the recent consolidation wave means the company is “absolutely the first stop for any investment banker shopping TV stations,” Sweeney of Bloomberg Industries said in a phone interview.
Sinclair’s Amy said in June that low borrowing costs and rising fees from cable-system operators presented an opportunity to bulk up. Size matters when station owners negotiate with larger partners, including pay-TV operators who pay to rebroadcast local signals to subscribers, and television networks like CBS Corp. that provide programming and want a slice of the money.
Stations have also benefited from more political advertising, rebounding spending on real estate and auto commercials and cost cuts since the recession.
“Consolidation is obviously a positive strategy because you gain strength in leverage,” Porter Bibb, managing partner at Mediatech Capital Partners LLC, a strategic adviser to individuals and investors in media and technology industries, said in a phone interview from New York. “The smaller groups are definitely going to have to be gobbled up to be able to survive profitably.”
Lin, Gray and Raycom may be among companies that Sinclair could consider buying all or parts of, Sweeney said. Lin, the owner of 43 TV stations, has a market value of $1.2 billion, and Gray, which owns and operates TV stations in 30 markets, is valued at $432 million. Since Gannett announced the acquisition of Belo, Gray has climbed 38 percent and Lin surged 88 percent as investors anticipated the wave of mergers would continue. Raycom is controlled by its employees and owns or provides services for 53 stations.
“If those portfolios fit from a geographic perspective, I think they would certainly look at it,” Sweeney said.
Gray rose 3 percent yesterday, while Lin fell 1.3 percent. Today, Gray climbed 2.9 percent to $7.71 at 9:58 a.m. New York time, and Lin added 3.2 percent to $22.37.
Hilton Howell, chief executive officer of Gray, said the company doesn’t comment on takeover speculation. Representatives for Lin and Raycom didn’t immediately respond to requests for comment about whether they’ve been approached about a deal or would consider selling.
While the company may have found some of the TV station owners that went to other buyers attractive, Sinclair has still played a significant role in the industry’s consolidation and doesn’t necessarily need more deals, said Lucas of Gabelli.
Analysts estimate Sinclair will almost double sales over the next three years to more than $2 billion. That growth will outpace the expansion at all but one other U.S. local media company valued at more than $500 million, according to data compiled by Bloomberg.
“It’s important for affiliate group broadcasters to have critical mass,” Lucas said in a phone interview. “Sinclair does now, but bigger appears to be better in terms of any negotiations. Given their size and scale, they can certainly be selective and opportunistic.”