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might seem like an odd Bull of the Day bull of the day being that it
to be acquired by (merge with) Gannet
Inc (GCI - Analyst Report),
Zacks Rank #3. Even so, I thought it was important to dig a
little deeper into this deal and determine if Belo BLC (soon
Gannet) can remain a
strong force in our world’s changing media landscape and if Belo or GCI
worth your time.
also consider it vital to clarify the deal and perhaps explain why Belo
trading above its purchase price of $13.75 as many retail investors may
into a stock that has a firm ceiling that it would be able to climb
BELO Corporation was, essentially the largest
pure-play publicly-traded television station company in the nation. The
owns and operates twenty major television stations, including ABC, CBS,
FOX, CW and MyNetwork TV affiliates reaching over14 percent of U.S.
and their associated Web sites, in 15 highly-attractive markets across
United States. Belo stations rank first
or second in nearly all of their local markets.
Gannett Co., Inc.
operates 22 television
stations in the United States and is an international news and
company that publishes daily including USA TODAY, the nation's
daily newspaper. The company also owns in excess of 400 non-daily
in the USA and USA WEEKEND, a weekly newspaper magazine. Gannett’s
Newsquest is the United Kingdom's second largest regional newspaper
Gannett will acquire all outstanding shares
of Belo for $13.75 per share in cash, or approximately $1.5 billion,
assumption of $715 million in existing debt for an enterprise value of
According to a recent
press release by Gannett,
the combination of Belo and Gannet will create a broadcast "Super
Group," catapulting Gannett into the nation's fourth-largest owner of
major network affiliates reaching nearly a third of all U.S.
After the deal is
complete, Gannett's broadcast
portfolio will almost double from 23 to 43 stations, including stations
serviced by Gannett through shared services or similar sharing
new broadcast segment will have greater geographic and revenue
21 stations in the top 25 markets and will become the #1 CBS affiliate
the #4 ABC affiliate group, and will expand its already #1 NBC
The transaction is
expected to close by the
end of 2013 and will be subject to antitrust approval.
it Worth Your Investment?
Belo is already trading above the $13.75 cash
acquisition price, after sharply rising after the merger announcement
month. If gannet was utilizing a stock
for stock acquisition method, then shares of BLC could continue to rise
stock increases as there would be a quantifiable connection between the
but with this being an all cash deal, that’s not the case.
Given the premium to
offer, you should
probably avoid the stock (BLC) here as its upside will be limited
course you’re a merger arbitrage specialist.
Gannett, on the other hand, stands to gain potential appreciation from
here. While it’s only a Zacks Rank #3
now, that could change as the deal comes to an end.
announcement, both companies were
on the right earnings trajectory as of late as estimates were on the
both were seeing year over year growth contraction. Both
companies were looking for moderate
earnings growth in 2013, on a slight decline in revenues.
There is no doubt
that investors like the
prospects of the combined entity as both stocks rallied sharply on the
The company also
believes that this is a
win-win; they anticipate that the transaction will generate
million in annual run-rate synergies within three years after
The transaction is additionally expected to
generate significant free cash flow and be accretive to non-GAAP
share by approximately $0.50 within the first 12 months.
valuation implies a 9.4x
average 2011/2012 EBITDA multiple prior to synergies, and a 5.4x
assuming expected synergies (according to Belo).
Mark Fratrik, a vice
president and chief
economist for BIA/Kelsey believes that this deal could propel Gannett
becoming the number 3 local station owner in the United States, by
revenue. News Corporation ranks first with 27
and CBS Corporation, which owns 29 stations, is currently number 2.
This deal goes beyond
the local news. Gannett is invested heavily in advertizing
signage and perhaps most importantly, internet properties
The acquisition of Belo will continue to add
pricing and a competitive edge to Gannett’s franchise.
While you might not
get your local newspaper
delivered by the paperboy anymore, trusted information and quality
will never go the way of the Dodo.
If you are going to
buy either company, look
to GCI for the longer term play despite the Zacks Rank of 3 as shares
of Belo shouldn’t
be going much higher from here. You might also wait for a
move back into the $24.00 range for GCI as shares are slightly
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