Gannett Co., Inc. (GCI) announced the acquisition of television-station operator, Belo Corp. . The news prompted a more than 34% jump in the shares of the newspaper conglomerate, with investors reacting positively to this landmark event in its long history.
Gannett will purchase all outstanding shares of Belo for $13.75 per share (a 28% premium to the company’s closing price on Wednesday), bringing the estimated value to $1.5 billion in cash. Taking into account Belo’s existing $715 million debt, the total transaction value amounts to $2.2 billion. The company expects to close the transaction by the end of 2013.
The deal will serve as a game changer for Gannett as it will solidify its foothold in the rapidly growing broadcast media business by almost doubling its existing broadcast portfolio from 23 to 43 stations. Alongside, this major acquisition makes it the fourth-largest owner of major network affiliates in the U.S.
Moreover, this deal is a perfect fit for the company as it will transform Gannett’s business model, which was largely focused on low margins newspapers to a high-margin multi-media business and position it as the top affiliate for CBS Corporation (CBS - Analyst Report).
Further, Gannett will emerge as the fourth largest affiliate of ABC stations owned by The Walt Disney Company (DIS - Analyst Report) and boost its leading position in the NBC affiliate group.
The company is fast adapting to the changing face of the multiplatform media universe and with greater focus on broadcast and digital assets, Gannett remains well poised to capitalize on the promising digital media landscape.
The company stated that it expects to generate $175 million in annual synergies within three years after the deal closure. Further, it is anticipated to add about 50 cents to its adjusted earnings per share within the first 12 months and expects to generate substantial cash flow.
The company further added that the Broadcast division is expected to generate more than half of the company's pro forma EBITDA, while the Digital and Broadcast segments are collectively expected to contribute almost two-thirds of it.
Alongside, Gannett announced a new $300 million share buyback program, overriding its existing share repurchase authorization and also stated that it will continue with its current dividend payout program.
Currently, shares of Gannett carry a Zacks Rank #3 (Hold).