Apollo and Gray Television match offers to buy Tegna. What happens next?

March 6, 2020
Category: Business & Work

This post has been updated to include information about a new matching offer from Apollo Global Management.

A Reuters report Friday morning quoted “sources” saying Gray Television has made an $8.5 billion bid to buy Tegna.

Late Friday night, The Wall Street Journal reported Apollo Global Management said it would match a $20 per share offer to buy Tegna. Apollo said its offer would be in all cash.

The initial report sent Tegna stock soaring even while the broader stock markets tanked for a second straight day.

The Reuters story comes a week after Gray and Tegna announced a deal in which Gray bought minority ownership in Tegna’s over-the-top television advertising unit, Premion. That business alone booked $100 million in revenue last year and was predicted to grow substantially this year as TV stations look beyond over-the-air advertising and toward streaming programs as a significant new business. Last week, Wall Street analysts touted TEGNA’s future.

In recent weeks, Tegna battled its third-largest shareholder, Standard General, over replacing Tegna board members. And Apollo, which last year purchased a majority stake in 13 television stations owned by Cox Media Group and provided $1.8 billion of debt financing to New Media Investment Group for its massive takeover of Gannett, has made overtures for nearly a year to try to buy Tegna. That round of tire-kicking never landed on an offer that included a price.

The Reuters story said the latest takeover offer is premised on $20 per Tegna share, but an “offer” does not imply an agreement. The last two years have seen many such offers in the broadcast consolidation world. Recently, Nexstar Media Group bought Tribune Media for $7.2 billion after an offer by Sinclair Broadcast Group fell apart.

Atlanta-based Gray has some room to grow under the Federal Communications Commission rules that limit how much of the national audience an owner can reach with its over-the-air signals. Gray currently covers 24% of the country with stations in 93 markets. Tegna has 52 stations in 61 markets, but the markets are bigger and reach 39% of the country.

Tegna has stations in cities big and small — including Tampa, Seattle, Minneapolis, Dallas, Denver and Washington D.C. — and was the product of the breakup of Gannett that spun off more profitable broadcast properties from is newspaper holdings.

Even in a rocky stock market, and a drop in the number of U.S. households that have access to over-the-air TV, broadcast companies have raked in record political advertising sales. Broadcast companies have generally taken the attitude that “bigger is better” and have consolidated back-office functions to streamline costs. As they grow their portfolios, they are also producing more “over-the-top” programs that run on streaming services.

In February, Gray reported blockbuster 2019 earnings.

“Our revenue for the full year 2019 was $2.1 billion, increasing $1.0 billion, or 96%, from 2018, marking our highest ever annual revenue,” the company told shareholders. “Our net income for 2019 was $179 million. Our Broadcast Cash Flow for the full year 2019 was $729 million, increasing $236 million, or 48%, from 2018, our highest ever annual Broadcast Cash Flow.”

Gray took in $38 million in political ad sales just in the last quarter of 2019.

Neither Gray nor Tegna has commented on the Reuters story.

Al Tompkins is senior faculty at Poynter. He can be reached at atompkins@poynter.org or on Twitter, @atompkins.