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Recently, Gannett Co., Inc. (GCI - Analyst Report) and the U.S. Department of Justice (DOJ) reached an agreement whereby the former will sell a St. Louis-based television station to facilitate the completion of Belo Corp. acquisition.

As per the DOJ, Gannett will sell KMOV-TV, a CBS affiliate in St. Louis owned by Belo to Sander Media, Arizona based third-party operator. KMOV-TV is one of the six TV stations that Gannett had planned to sell to Sander Media, designed to operate in markets where both Belo and Gannett have a presence.

Presently, Gannett operates KSDK-TV, an NBC associate in St. Louis. KSDK-TV and KMOV-TV are the major competitors in the St. Louis market and as a result, the advertising rates remain under control. The DOJ’s main concern was the possibility of a rise in advertising rates if Gannett became the predominant player in the St. Louis market.

Therefore, in order to ensure healthy competition, the DOJ directed Gannett, which contests with The New York Times Co. (NYT - Analyst Report), Journal Communications Inc. (JRN - Snapshot Report) and The E. W. Scripps Co. ((SSP - Snapshot Report)), to sell KMOV-TV and thereby complete the Belo acquisition.

According to Gannett, the vending of KMOV-TV will likely be complete in 2014. The divestiture is subject to the Federal Communications Commission’s approval, but the company declared that the settlement would permit closure of the Belo deal by December-end.

It was in June that Gannett announced the acquisition of television-station operator, Belo Corp. Reportedly, the company will purchase all outstanding shares of Belo for $13.75 per share, 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 deal will serve as a game changer for Gannett as it will strengthen its foothold in the rapidly growing broadcast media business. Alongside, this major acquisition makes it the fourth-largest owner of major network affiliates in the U.S.

Moreover, this deal is a strategic fit for the company as it will transform Gannett’s business model, which was primarily focused on low margins newspapers to a high-margin multi-media business.

Presently, Gannett carries a Zacks Rank #3 (Hold). 

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