by Richard Morgan | Published July 20, 2012 at 6:30 AM
The television sector exploded with more than $1 billion in M&A activity Thursday, July 19, due to moves triggered, mostly, by the exit strategy of Providence Equity Partners Inc. for 4-year-old portfolio company Newport Television LLC.
Newport, the company that president and CEO Sandy DiPasquale and Providence established in March 2008 to absorb Clear Channel Television, agreed to unload a total of 22 TV stations through three separate agreements. Those agreements, subject to regulatory approval, will transfer four stations to Cox Media Group Inc., 12 stations to Nexstar Broadcasting Group Inc. and six stations to Sinclair Broadcast Group Inc.
"These divestitures are the result of a thoughtful strategic review process conducted by the board to maximize value at Newport, and we believe these high quality stations will have a bright future with their new owners," DiPasquale said. As for Newport's five remaining stations, DiPasquale said his station group and financial sponsor Providence were already "in discussions with potential buyers."
Providence began exploring strategic alternatives for Kansas City, Mo.-based Newport in March by retaining Moelis & Co. The New York investment bank went on to serve as Newport's exclusive financial adviser, with a team led by Navid Mahmoodzadegan, John Momtazee and Anish Aswani. Weil, Gotshal & Manges LLP wound up giving the station group legal advice and Covington & Burling LLP acted as regulatory counsel.
The deal appears to be modestly profitable to Providence, which paid $1.012 billion for the 56-station group acquired from then-parent Clear Channel Communications Inc. Of that amount, however, Providence put in equity of only $260 million. What's more, Newport has been selling some stations piecemeal, most recently in Bellingham, Wash., and previously in Fairbanks, Alaska, and Santa Rosa, Calif.
Newport said the $1 billion to be delivered by the three deals represented a last-12-months aggregate broadcast cash flow multiple of 10.5 and an aggregate LTM Ebitda multiple of 11.4. Yet that doesn't mean Thursday's trio of buyers overpaid.
Indeed, Nexstar and Sinclair both said they expected their transactions to be immediately accretive after a closing slated for the fourth quarter. And Marci Ryvicker, the Wells Fargo Securities LLC media analyst, put a blended multiple of 6 to 6.5 times Ebitda on the six stations purchased by Sinclair.
Approximate prices and specific stations by buyer are:
Cox Media Group, for around $300 million, bought WAWS and WTEV (Jacksonville, Fla.) and KOKI and KMYT (Tulsa, Okla.);
Nexstar Broadcasting, for $285.5 million, acquired KTVX and KUCW (Salt Lake City), KLRT and KASN (Little Rock, Ark.), WPTY and WLMT (Memphis), WJKT (Jackson, Tenn.), WSYR (Syracuse, N.Y.), WETM (Elmira, N.Y.), WIVT and WBGH (Binghamton, N.Y.) and WWTI (Watertown, N.Y.). Nexstar also purchased Newport's Inergize Digital Media operations; and
Sinclair, for $412.5 million, added WOAI (San Antonio), WHP (Harrisburg, Pa.), WKRC (Cincinnati), WPMI (Mobile, Ala.), and KSAS and KMTW (Wichita, Kan.). Sinclair also obtained, pursuant to local marketing agreements, the right to program and operate WLYH (Harrisburg, Pa.) and KMTW (Wichita).
The five Newport stations still to be sold are KGET (Bakersfield, Calif.), KGPE (Fresno, Calif.), WHAM (Rochester, N.Y.), WXXA (Albany, N.Y.) and KMTR (Eugene, Ore.).
Although driven by Newport's exit strategy, Thursday's M&A activity had a number of embellishments. Irving, Texas-based Nexstar partnered with Mission Broadcasting Inc. on its 12-station purchase and, in return, Westlake, Ohio-based Mission will receive their shared parcel's two Little Rock stations. Also, for their purchase price of $285.5 million, Nexstar announced that it and Mission secured commitments for new $645 million senior secured credit facilities, consisting of a $570 million term loan due in 2019 and a $75 million revolving credit facility due in 2017.
"The Newport transaction is a transformational event for Nexstar from a strategic and operational standpoint," said Nexstar president and CEO Perry Sook, "and will bring very significant free cash flow accretion to the company immediately upon closing."
Sook also gave favorable pro forma guidance, saying Nexstar's acquisitions and new credit facilities promised to generate free cash flow levels about 45% above those obtainable from existing operations. Total leverage, meanwhile, is expected to rise by only a half turn due to the acquisition and is expected to recede below 5 times at the end of 2013.
Sook's forecast no doubt sat well with Abry Partners LLC, which funded Nexstar's formation in 1996 and remains the station group's largest shareholder with a 52.9% equity interest. Said Jay Grossman, an Abry managing partner who sits on Nexstar's board: "Abry is a strong advocate of the value the transaction announced today creates for all shareholders. While we have an intention over time to monetize the value of our Nexstar holdings for our investors, we will be highly disciplined in this regard."
More embellishments came from Sinclair, whose six new stations brought the one-year total acquired by the Baltimore-based TV group to 23. In addition, the company entered into agreements with Deerfield Media Inc. on Thursday to sell the license assets of one of Sinclair's stations in San Antonio and another in Cincinnati -- subject to a Fox Television Stations purchase option in Cincinnati -- and to assign Deerfield the right to buy two stations in the Mobile/Pensacola market. And in another deal, Sinclair agreed to purchase Bay Television Inc., which owns WTTA-TV in the Tampa/St. Petersburg market, for $40 million.
"The Newport stations acquisition is consistent with our focus of adding 'big four' affiliates in midsized markets and strengthening our in-market positions," Sinclair president and CEO David Smith said. "We believe the stations will be free cash flow accretive and add approximately $55 million to $60 million of pro forma TV operating cash flow, on average, for 2012/2013."