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Local TV: Long an Ally, Now It's Family

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On the final day of the fourth quarter last year, Tribuneemerged from bankruptcy after four tumultuous years in restructuring
purgatory. On July 1, the first day of the third quarter, it announced an eye-popping
$2.72 billion acquisition of Local TV LLC -- a handsome batch of strong local
news players in markets No. 17 to 101.

From late 2011 to present, Sinclair was the talk of the
local TV world with its nearly $2 billion in station acquisitions. Then, in mid-June,
Gannettsucked up all the oxygen with its $2.2 billion grab of Belo.

Two weeks after that, Tribune sports the deal of the year crown as it welcomes
the likes of WJW Cleveland, KDVR Denver and KSTU Salt Lake City to its fold.

A single word has dominated the local TV world in 2013: scale.

The word was repeated frequently when Tribune brass
addressed investors hours after the announcement. "Our investment thesis
is simple," says Peter Liguori, Tribune president and CEO. "Scale
matters. Scale enhances all elements of our business: advertising, our
relationships with MVPDs and our network affiliates, better use of our
programming and local news content as well as spectrum."

Local TV was hatched out of a pair of acquisitions by Oak
Hill Capital: The nine-station New York Times Co. group for $575 million in
2007 and eight former Fox O&Os for $1.1 billion in 2008. Early in 2013, it
put the stations on the block, and the deadline for bids was June 21.

While some elements of the announcement were a shocker,
others were not. Tribune and Local TV have had a relationship almost since
Local TV was born. In 2008, Tribune and Local created "a third-party
broadcast management company which will provide shared services to all of the
stations Local TV and Tribune Company own," the companies said at a time.
Officially titled "The Other Company," the partnership also gave the
two outfits the buying power of a larger group.

The groups also have shared facilities and staff in St.
Louis and Denver. There are no other common TV markets between Tribune and

"They've kind of been joined at the hip for
years," says Bill Hague, senior VP at Frank N. Magid Associates.
"It's as easy as anything they could've done. It makes sense -- it's a
very good strategic move."

The deal awaits regulatory approval and is expected to close
by the end of the year.

It is a colossal one -- with a combined 42 stations in 33
markets, some 50 million TV homes and 1,300 hours a week of local news.
Reaching 41.1% of U.S. homes, according to Larry Wert, president of local
broadcasting, it would catapult Tribune ahead of CBS and Fox in terms of
station group reach. Only Ion reaches more households. Upon closing, notes
Tribune, the acquisition "will immediately transform Tribune into the country's
largest commercial TV station owner."

"This transaction shows a commitment to be a proactive
and innovative content and distribution company," says Wert. "We are
certainly not playing defense anymore."

Liguori and Wert both noted the affiliate diversity the deal
gives Tribune. While Tribune holds a large number of CW stations, Local TV
means seven more Fox affiliates, which would make Tribune the largest Fox
affiliate holder -- along with five CBS stations and a pair apiece of ABC and NBC
-- and less reliance on the CW.

The acquisition also gives Tribune a stronger presence in
battleground markets, such as Pennsylvania and Ohio where political dollars are
spent freely, and more leverage for its WGN America cable channel, which
Liguori mentioned often while addressing investors after the deal was
announced. A vastly expanded station group will spell more robust retrans
payments and more favorable channel positions for WGN America, which currently
reaches 75 million households.

Thanks to the so-called UHF discount, where the FCC counts
UHF stations' reach as a half-share against a group's ownership cap, Tribune --
below 30% by the FCC's count -- can continue to grow. "There are a number
of opportunities that have arisen and will continue to arise," said
Liguori. "We continue to look at broadcast stations that come up and are

Liguori said Tribune will continue to invest in homegrown
programming, and made a point to remind investors to mark Arsenio Hall's return
to TV in September on their calendars; Arsenio
will enjoy a larger and louder promotional platform with the
acquisition. The expanded footprint will enable Tribune to not only test shows
within the group, said Liguori, but sell the more successful ones to stations
outside the portfolio.

Tribune will continue the R&D it has been conducting for
years to grow a stable of homegrown fare, such as The Bill Cunningham Show, to air across its expanded footprint.
"Anything is possible," Wert says. "We're looking across all

Tribune's stock entered the day at $56.90 a share, and shot
to $62.50 a few hours later. It finished the day at $60.

When the deal closes, old friend Local TV will
officially be part of the Tribune family. "There was and is a
relationship," says Wert. "There's an understanding and a sensibility
and a feel for the current leadership and its plans. All in all, both sides saw
it as a great fit."