Gannett/Belo: Station Consolidation Nation

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TheRise of the Station Super-Groups

While Sinclair has been getting all the ink for its intense
M&A strategy of late, racking up around $2 billion in TV stations over the
last year and a half, Gannett's acquisition of Belo, with its $2.2 billion
price tag, eclipses Sinclair's staggering run of deals.

Consolidation has been the name of the game in local
broadcast, with groups needing major scale to throw weight around with their
partner networks and the subscription-TV carriers that pay to air their stations.
Perry Sook, Nexstar chairman, president and CEO, presaged the concept of the
"super-group" on an earnings call in November, and with Gannett's
acquisition of Belo, the term appears to have officially entered the
broadcasting lexicon.

"Conceptually, Dunia [Shive, Belo president and CEO]
and I have talked for a long time about what we perceive to be the value of a
super-group, particularly in an evolving digital marketplace and evolving media
landscape," said Gracia Martore, Gannett president and CEO. "We
thought it made great sense, that scale really matters. And then as we got to
look at the shared values of companies and shared cultural focus on great local
journalism, we thought that there might be a great fit here."

Shive said the Belo stations were never put up for auction,
but that the talks with Martore elicited a "very attractive and compelling

For its $2.2 billion outlay, which includes assuming $715
million in existing debt, Gannett gets a total of 43 stations, including 21 in
the top 25 markets, and rockets up to the No. 4 station group in terms of
household reach. Belo holds several leading local news organizations, including
WFAA Dallas and KING Seattle.

Martore said the deal reflects a 9.4X EBITDA multiple, not
including the synergies Gannett receives from its expanded group. With those
factored in, it's a 5.4X multiple. She anticipates the transaction generating
some $175 million in annual synergies within three years after closing.

The deal, which awaits regulatory approval, is easily the
biggest TV station acquisition in many years. In fact, little comes close; in
2008, Oak Hill Capital's Local TV LLC paid $1.1 billion for eight Fox-owned
stations. That same year, the Clear Channel group was sold to Newport
Television, a holding company for Providence Equity Partners, also for $1.1 billion.

Five years later, Local TV is for sale, and Newport is one
of several station groups that have ceased to exist, at least in name, along
with Freedom, New Vision and McGraw-Hill, among others, with Fisher,
Barrington, Titan, Young Broadcasting -- and Belo -- in the process of being
absorbed as well.

Sinclair's largest deals, by comparison, include the $373.5
million grab of Fisher, $385 million for the Freedom and $412.5 million for
part of Newport.

Gannett's existing TV properties reach 18.2% of the U.S.,
while Belo's reach 14.6%. One wrinkle to be worked out for Gannett is the
markets where it and Belo own stations: Phoenix, St. Louis, Louisville,
Portland and Tucson. Gannett says it plans to "restructure ownership"
of the Belo stations in these markets, and provide station services for a fee
to the new owners that emerge. "We are confident that we will be able to
own or service all of the stations," said Martore. "We expect to
consolidate all the results from these stations into our overall financial

As it had done upon the announcement of Young's merger with
Media General June 6, Wall Street largely applauded the latest chapter in
station consolidation. Gannett's stock price closed at $19.85 June 12, and shot
to $25.51 when the market opened June 13 -- 90 minutes or so after its
blockbuster announcement.

"Looking at the GCI (Gannett)/BLC (Belo) culture,
market sizes and portfolios, we view this transaction as a 'perfect fit,'"
wrote Marci Ryvicker, senior analyst at Wells Fargo Securities.

The cultures do indeed appear well matched, at least on
paper: Station groups with strong local news as a cornerstone, and a bevy of
market leaders to show for it. One key bridge builder is Dave Lougee, president
of Gannett Broadcasting, who spent a big chunk of his career at Belo before
coming on board at Gannett. He joined Belo in 1998 as news director at KING,
and worked his way up to executive VP of Belo's stations before taking on a
group role at Gannett.

The proposed deal tellingly shifts Gannett, owner of USA Today and 82 daily papers, to more
of a broadcast company. For its part, Belo spun off its newspaper division,
which took the name A.H. Belo, in 2007. Some on Wall Street are pushing Gannett
to similarly split, and the Belo acquisition gives them increased hope.
"As the company moves further away from newspaper publishing, we think
that the prospects for such a separation could increase," wrote Barry
Lucas, senior VP of research at Gabelli & Co.

Media watchdogs are, not surprisingly, displeased to see
another major act of consolidation go down.

"This increasing concentration of ownership -- combined
with covert consolidation that combines what used to be competing newsrooms -- is
poorly serving local communities," said Craig Aaron, president of media
activist group Free Press. "And yet the FCC continues to keep its head in
the sand. We need ownership rules that promote local service, not corporate

The watchdogs will be busy as broadcasters continue to join
up in a seemingly never-ending quest for clout.

"I think scale is very, very important in
an evolving media marketplace," said Martore. "It's important in all
our relationships to have the scale we now have."

Michael Malone

Michael Malone, senior content producer at B+C/Multichannel News, covers network programming, including entertainment, news and sports on broadcast, cable and streaming; and local broadcast television. He hosts the podcasts Busted Pilot, about what’s new in television, and Series Business, a chat with the creator of a new program, and writes the column “The Watchman.” He joined B+C in 2005. His journalism has also appeared in The New York Times, The Philadelphia Inquirer, Playboy and New York magazine.