Fox31 and Channel 2 are among 42 stations that have just been sold to Nexstar Media Group. But a lot still has to happen before Nextar's name appears on the paychecks of employees at the sister outlets, who've been through incredible ownership tumult over the past year-plus. And when the dust finally settles, there's a very good possibility that Fox31 won't be part of the package.
The craziness began in May 2017, when Sinclair Broadcast Group announced the purchase of the aforementioned stations, all in the portfolio of Tribune Media, for a reported $3.9 billion. This move immediately led to speculation that the conglomerate, whose viewership in its biggest markets was estimated at 2.2 million, wanted to create a national network of GOP-friendly stations that might challenge the dominance of cable powerhouse Fox News.
Even before the Tribune Media buy, Sinclair had been using its properties to spread a conservative message via commentaries by former executive Mark Hyman, known for attacks on so-called snowflakes and a defense of the Washington Redskins football team, whose executives refuse to replace a name that many people view as racist. Also part of the Sinclair team is Boris Epshteyn, a former adviser to President Donald Trump whose own invective flies with the right wing.
The Hyman-Epshteyn packages are designated as "must-run," meaning that affiliates have to include them in newscasts whether local managers want to or not. And although some stations, like KOMO in Seattle, tried to soften this edict's blow by airing some of the salvos during the wee hours, the prospect that this could change in the future likely influenced Fox31 news director Holly Gauntt to jump to Denver7 mere months after Sinclair's deal was announced.
Before long, however, questions about whether the transaction would win federal approval led Sinclair to negotiate with broadcasting companies that might be interested in picking up a few of the signals — and 21st Century Fox, the domain of Fox News owner Rupert Murdoch, was interested in snagging Fox31. This development seemed likely to doom Channel 2's news operation, which is put together at Fox31 using shared equipment, resources and personnel.
In August, the Sinclair deal fell part amid a Tribune lawsuit and breach-of-contract accusations, much to the chagrin of Trump, who was looking forward to knowing that dozens of stations would soon be dedicated to lavishing him with praise. Afterward, he tweeted: "So sad and unfair that the FCC wouldn’t approve the Sinclair Broadcast merger with Tribune. This would have been a great and much needed Conservative voice for and of the People. Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair. Disgraceful!"
Enter Nexstar, whose 170-plus television stations make it the largest owner of such operations in the country. The price tag for the Tribune properties: around $4.1 million.
Unlike Sinclair, Nexstar isn't overtly fueled by ideology, unless the drive for profits qualifies. For evidence, look no further than the invaluable Open Secrets website, which tracks the people and causes companies back. While Nexstar's political donations tilted toward Republicans during the 2018 campaign cycle, 43 percent of its cash went to Democrats. The only Colorado candidate to get Nexstar money this year was Representative Ken Buck, who came away with the modest sum of $1,000, and no Coloradan from either party received a donation in 2016. Neither did Trump during the year he was elected president — but his opponent, Hillary Clinton, was gifted $5,000.
Whether Fox31 and Channel 2 wind up beneath the Nexstar umbrella is another question. The FCC still has to okay the purchase, and that's hardly guaranteed. Indeed, the feds may balk at approving the transfer of all 42 licenses, which explains why Variety is reporting that "the new-model Fox is expected to seek to buy numerous Tribune-owned Fox affiliates as part of the transaction."
While Fox31 isn't specifically mentioned in the Variety piece, it was one of seven stations in a $910 million agreement jointly announced by Sinclair and 21st Century Fox in May. If Fox31 is sold separately, the future would be wide open for Channel 2 under Nexstar — but there's no telling at this point if the changes would be for good or ill from employees' perspective.
Continue to read the press release about the Tribune-Nexstar pact:
Nexstar Media Group Enters into Definitive Agreement to Acquire Tribune Media Company for $6.4 Billion in Accretive Transaction Creating the Nation’s Largest Local Television Broadcaster and Local Media Company
Highly Diversified Local Marketing and Content Platform with Strong Financial and Growth Profile will be Better Positioned to Compete in Rapidly Transforming Industry based on Combination of Scale and Commitment to Localism, Innovation and Growth
Nexstar Media Group, Inc. (Nasdaq: NXST) ("Nexstar") and Tribune Media Company (NYSE: TRCO) ("Tribune Media") 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. The transaction reflects a 15.5% premium for Tribune Media shareholders based on its closing price on November 30, 2018, and a 45% premium to Tribune Media’s closing price on July 16, 2018, the day the FCC Chairman issued a public statement regarding his intention to circulate a Hearing Designation Order for Tribune Media’s previously announced transaction with a third party. Tribune Media shareholders will be entitled to additional cash consideration of approximately $0.30 per month if the transaction has not closed by August 31, 2019 (pro-rated for partial months and less an adjustment for any dividends declared on or after September 1, 2019). The transaction has been approved by the boards of directors of both companies and is expected to close late in the third quarter of 2019, subject to receipt of required regulatory approvals and satisfaction of other customary closing conditions.
Upon closing, the transaction is expected to be immediately accretive to Nexstar’s operating results inclusive of expected operating synergies of approximately $160 million in the first year following the completion of the transaction and planned divestitures. The proposed transaction will combine two leading local media companies with complementary national coverage and will reach approximately 39% of U.S. television households pro-forma for anticipated divestitures and reflecting the FCC’s UHF discount. The transaction is not subject to any financing condition and Nexstar has received committed financing for the transaction from BofA Merrill Lynch, Credit Suisse and Deutsche Bank.
Following the completion of the transaction, Nexstar will benefit from increased operational and geographic diversity and scale as a result of Tribune Media’s diverse portfolio of media assets including 42 owned or operated broadcast television stations in major U.S. markets; compelling local news and entertainment content creation; significant broadcast distribution; a reinvigorated general entertainment cable network, WGN America; a 31% ownership stake in TV Food Network, which is a top tier cable asset; and equity investments in several digital media businesses. The combined entity will be one of the nation’s leading providers of local news, entertainment, sports, lifestyle and network programming through its broadcast and digital media platforms with pro-forma annual revenue of approximately $4.6 billion (2018/2019 average) and pro-forma adjusted EBITDA of approximately $1.7 billion (2018/2019 average). With 216 combined, pre-divestiture full power, owned or serviced, television stations in 118 markets and rapidly growing digital media operations, Nexstar will continue its commitment to localism and innovation and offer superior engagement across all devices, including large-scale reach to U.S. television households and online users.
Perry Sook, Chairman, President and CEO of Nexstar, commented, "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.
"The transaction offers synergies related to the enhanced scale of the combined broadcast and digital media operations, and increases our audience reach by approximately 50%. Furthermore, the addition of the Tribune Media broadcast assets further expands our geographic diversity, as pro forma for the completion of the transaction, we will serve 18 of the nation’s top 25 markets and 37 of the top 50 markets.
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"Financially, the transaction will result in approximately 46% growth in Nexstar’s average annual free cash flow in the 2018/2019 cycle to approximately $900 million, or approximately $19.50 per share, per year based on approximately 46.2 million Nexstar shares outstanding. In the twenty two years since we founded Nexstar, we have demonstrated prudent use of leverage and an ability to source capital at attractive rates to support our strategies for growth and the enhancement of shareholder value. Given our planned divestitures and the significant free cash flow from operations we intend to allocate capital from the combined entity to immediately reduce leverage and increase our return of capital to shareholders, while investing in our business to improve service to viewers and advertisers. This focus, combined with our time proven operating and integration strategies will enable us to extend our strong long-term record of shareholder value creation."
Peter Kern, CEO of Tribune Media, said, "We are delighted to have reached this agreement with Nexstar as it provides Tribune shareholders with substantial value and a well-defined path to closing. Together with Nexstar we can better compete by delivering a nationally integrated, comprehensive and competitive offering across all our markets. We believe this combination will produce an even stronger broadcast and digital platform that builds on the accomplishments of both companies and benefits our viewers and advertisers. The premium value our shareholders are receiving reflects the hard work of our dedicated Tribune employees in maximizing the value of our portfolio. I look forward to working closely with the Nexstar team to deliver on the value of this compelling combination and to ensure a smooth transition and integration of our companies."
Thomas Carter, Chief Financial Officer of Nexstar, added, "This accretive transaction marks further progress toward our goal of improving our competitive position by strategically expanding our operating base to realize the benefits of scale, increasing our strategic and financial flexibility, and driving shareholder value. Our long-term experience in integrating acquired assets and our success over the last seven quarters in outperforming our synergy targets and driving other operating efficiencies related to our acquisition of the Media General operations will serve us well as we add the Tribune Media assets to our operating base. With our experienced management team, operating discipline and focused approach to managing our capital structure and cost of capital, we believe the acquisition of Tribune Media presents another meaningful opportunity for Nexstar, the markets we serve and our shareholders. Notably, after giving effect to the transaction, the incurrence of debt, transaction expenses, and the expected first year synergies of $160 million as well as in-process and planned asset sales, we expect our net leverage ratio to be approximately 5.3x at closing and with the free cash flow generated from this base of operations, we expect Nexstar’s net leverage to decline to the 4.0x range by the end of 2020, a year which will also benefit from significant 2019 renewals of retransmission consent agreements and the Presidential election."
Completion of the transaction is subject to approval by Tribune’s shareholders, as well as customary closing conditions, including approval by the FCC, and satisfaction of antitrust conditions. Nexstar intends to divest certain television stations necessary to comply with regulatory ownership limits and may also divest other assets which it deems to be non-core. All after-tax proceeds from such asset sales are expected to be applied to leverage reduction.