A Buyout That Makes You Wonder Who Wins

The reaction of the shares of Belo Corp., which agreed to a buyout offer from Gannett Co. last month, suggest it might could have gotten a better price. 

Here are two things you don't see often in corporate mergers and acquisitions. Shares of Belo Corp., the Dallas-based owner of television stations, are trading for more than the takeover offer the company agreed to last month. And shares of the buyer, Gannett Co., have increased even more in value.

The market is saying that Gannett got a much better deal than Belo did -- so much so, that some investors buying Belo's stock seem to hope that Gannett will raise its offer. Here are the numbers: Gannett, the publisher of USA Today, last month agreed to pay about $1.5 billion in cash, or $13.75 a share, for Belo. Meanwhile, Belo's stock closed yesterday at $14.24, or 3.6 percent more than the sale price.

The market's verdict becomes even more obvious when you look at how much each company's stock-market value has risen. Both companies' shares soared on the deal news. Belo is valued at about $360 million, or 33 percent, more than it was on June 12, the day before the deal was disclosed. Gannett, by comparison, is worth about $1.4 billion, or 31 percent, more -- a gain that's almost as large as its offer for Belo.

The companies share some of the same large investors. Belo's top three shareholders -- Fairpointe Capital, Blackrock, and Vanguard Group -- each had more than a 5 percent stake as of March 31. They also owned significant stakes in Gannett. So even if Gannett is getting Belo for a steal, they might not mind.

Most Belo investors seem satisfied with the offer. One exception: A pension run by an arm of the International Brotherhood of Electrical Workers sued Belo last month in a Delaware state court, saying company directors accepted an inadequate offer. And maybe they did. The sale agreement resulted from exclusive talks with Gannett, according to aproxystatement Belo filed last week. Plus, there has been aflurry of deals recently for TV station operators. Shortly after Gannett's offer for Belo was disclosed, Tribune Co. said it would buy Local TV Holdings LLC's 19 stations for $2.7 billion in cash.

Belo's common shareholders ultimately may not have much say in whether the Gannett deal goes through. Thanks to a dual-class stock structure, Belo executives and directors control about 49 percent of the company's voting rights -- even though they own only about 10 percent of Belo's shares outstanding. As long as they don't mind leaving money on the table, chances are slim that the deal will be voted down.

Still, you have to wonder if Belo's board might be having second thoughts: Belo would have to pay Gannett a termination fee of only $51.5 million to call off the transaction and accept a better offer from another suitor. Buying Belo's stock now at a small premium to the stated purchase price might not be such a crazy bet after all.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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