Nexstar to buy Tribune Broadcasting for $6.4 billion

December 2, 2018

Nexstar Media Group, which already owns 171 full-power TV stations in 100 markets that reach 38.7 percent of U.S. TV households, has emerged as the winner to buy Tribune's TV stations for $6.4 billion.

If the FCC approves — and that is a big "if" — Nexstar would become the biggest owner of local TV stations in America.  

The company said in a press release Monday morning, "Nexstar Media Group, Inc. and Tribune Media Company announced today that they have entered into a definitive merger agreement whereby Nexstar will acquire all outstanding shares of Tribune Media for $46.50 per share in a cash transaction that is valued at $6.4 billion including the assumption of Tribune Media’s outstanding debt.  

Perry Sook, Chairman, President and CEO of Nexstar, said in the Nextsar announcement that the financing for the deal is in place:

“Nexstar has long viewed the acquisition of Tribune Media as a strategically, financially and operationally compelling opportunity that brings immediate value to shareholders of both companies. We have thoughtfully structured the transaction in a manner that positions the combined entity to better compete in today’s rapidly transforming industry landscape and better serve the local communities, consumers and businesses where we operate.  As with our past transactions, we have developed a comprehensive regulatory compliance plan and believe we have a clear path to closing.  With committed financing and a plan for significant synergy realization that will result in only a minimal increase in Nexstar’s pro-forma leverage, the combined entity will be poised for growth, leverage reduction and increased capital returns for shareholders."

 

Reuters said, "Nexstar outbid private equity firm Apollo Global Management LLC with an all-cash offer that values Tribune at around $46.50 per share, three sources said. The agreement between Nexstar and Tribune Media could be announced by Monday, the sources added."

The sale includes local TV stations in each of the nation’s top three markets (New York, Los Angeles and Chicago) and seven of the top 10. Tribune Broadcasting "owns or operates 42 local television stations, reaching more than 50 million households." Tribune stations include CBS, ABC, FOX, NBC and the CW. Tribune, notably, owns WGN America, a cable network seen in 77 million households. Tribune also has varied holdings including an interest in The Food Network and a digital footprint that includes Cars.com.

Three months ago, Sinclair Broadcast Group thought it had sealed a deal to buy Tribune Media Co.'s TV stations. The deal fell apart when the FCC accused Sinclair of being untruthful in its filings. Sinclair offered $3.9 billion for Tribune and now is tied up in lawsuits over the soured deal.

Nexstar started with a single TV station 22 years ago and now has more than 9,000 employees. The company has been on a profitable ride recently with a 13 percent net revenue increase in the third quarter to a record-setting $693.4 million dollar quarter, led largely by a nearly 700 percent year-to-year increase in political ad spending. 2018 political ad spending at Nexstar stations was up more than 50 percent from 2014's midterm races. 

Broadcast companies including Nexstar, Sinclair, Gray Television and Tegna keep expanding for important strategic reasons. The broadcasters want the muscle to negotiate profitable retransmission agreements with cable companies who pay to carry the local channels. Earlier this year, Gray purchased Raycom Media for $3.65 billion.  

Industry watchers speculate that Fox will make a play to buy some of the Fox-affiliated stations that Nexstar would acquire in the Tribune deal. When it appeared Sinclair would buy Tribune, Fox offered $910 million for seven of the Tribune stations.  

Regulatory issues

The Federal Communications Commission currently limits how much of the country any single local broadcaster can reach at 39 percent. But Nexstar's CEO Perry Sook has been outspoken about how unfair it is for Google and Amazon and such to reach the whole globe with no restrictions. There is no limit to how many stations a company can own, just how much of the national audience it reaches. 

Since Republicans became the majority on the FCC, there has been a lot more chatter that the cap could rise to 50 percent of U.S. households. In June, Sook said that even if the FCC raised the limit to 50 percent, Nexstar might sue. Nexstar EVP/General Counsel Elizabeth Ryder told the FCC this year that local stations exist in a "vast competitive sea."  She wrote to the FCC:

Now, more than ever, television broadcasters must be permitted to achieve the scale and scope of operations necessary to compete in the current vastly fragmented, distribution system-dominated video marketplace. Elimination of the national cap in its entirety will foster increased competition among broadcasters, as well as provide broadcasters with opportunities to find innovative ways to serve audiences, thereby promoting competition, diversity, and localism. Accordingly, Nexstar urges the Commission to eliminate the national cap rule in its entirety.

The Tribune sale would come just as the FCC is about to meet Dec. 12 to "review broadcast ownership rules." Every four years, "The Commission is required by law to review certain broadcast ownership rules … to determine whether the rules remain 'necessary in the public interest as the result of competition' and to repeal or modify any rule it finds is no longer in the public interest." 

The agenda for the Dec. 12 meeting includes two key issues that would affect the Tribune sale:

• Seek comment on whether the Local Television Ownership Rule, which limits a single entity from owning two television stations in the same market except under certain circumstances, continues to serve the public interest and remains necessary in promoting the Commission’s policy goals.

• Seek comment on possible modifications to the rule’s operation, including the relevant product market; the numerical limit; the top-four prohibition; and the implications of multicasting, satellite stations, low power stations and the next generation transmission standard.

The Hill compiled current ownership totals. Keep in mind that the Gray and Raycom merger is still awaiting FCC approval:

  • Nexstar (130 stations)
  • Sinclair (118 stations)
  • Gray (75 stations)
  • ION (60 stations)
  • Raycom (47 stations)
  • TEGNA (45 stations)
  • Tribune (41 stations)
  • Univision (38 stations)
  • Hearst (32 stations)
  • Scripps (27 stations) 

And, The Hill points out, the market for station sales is red hot:

Despite the demise of that deal, the status quo has been indelibly changed. There has been a flurry of sales by smaller and mid-size broadcasters to get bigger. Cox Television will sell 14 stations. Raycom Media is selling its stations to Gray Television. Scripps bought Katz Broadcast networks. Major broadcast groups, including Nexstar, Tegna and Meredith are expected to join the fray as buyers, sellers or both. With growth, comes greater public interest expectations. Industry leader Perry Sook, CEO of Nexstar, has publicly committed to “putting more stations in the hands of small and minority buyers as part of our future processes” and other big broadcasters have vowed to expand coverage of local news. This comes as critics question the impact of consolidation on local and diverse communities.

In October, Nexstar's Sook hinted at what could be next for the company.  He told the National Association of Broadcasters meeting in New York that Nexstar is considering an app that would be a direct-to-consumer subscription that would deliver content to people who don't use television.

“There’s tremendous cross-promotional opportunities," he said. "Those are the kinds of bets we have to take. Wall Street wants to quantify it, but someone has to take the leap and find out. You’ve got to experiment and try. The status quo is not an option anymore. We’ve got to try new things."