TEGNA (TGNA - Free Report) is set to acquire leading TV stations, WTHR and WBNS, and WBNS Radio (1460 AM and 97.1 FM) from the Dispatch Broadcast Group for $535 million in cash.
The deal, structured as a stock purchase, represents 7.9 times estimated average EBITDA for the 2018-2019 period. The transaction is expected to close in third-quarter 2019.
Notably, Comcast (CMCSA - Free Report) owned NBC-affiliate WTHR is the #1 television station in Indianapolis, which is the 28th largest television market in the United States. WBNS, an affiliate of CBS (CBS - Free Report) , is the #1 rated station in Columbus, which is the 34th largest television market in the United States.
Per Columbus Business First report, WBNS serves 896,980 TV homes in 21 counties in Central Ohio. Moreover, WBNS Radio is a dominant sports radio content provider in the region and particularly popular among adults aged 25-54 years.
The deal expands TEGNA’s footprint, particularly in Ohio. Notably, the company already owns NBC-affiliate WKYC in Cleveland and CBS-affiliate WTOL in Toledo. Per management, post the completion of the deal, TEGNA will reach two-third of TV households in Ohio. This will also benefit its political advertising revenues.
Moreover, the transaction is immediately accretive to free cash flow per share. Additionally, it is expected to positively impact the bottom line within a year of the deal closure.
Acquisitions: Key Catalyst
Acquisitions have played an important role in TEGNA’s growth trajectory. Strategic acquisitions have expanded the company’s market reach. It currently operates 49 TV stations in 41 markets, catering to one-third TV households in the United States.
Early this year, TEGNA completed the acquisition of WTOL in Toledo and KWES in Midland-Odessa from Gray Television (GTN - Free Report) . The deal is expected to be accretive to earnings in 2019.
Moreover, in March, TEGNA signed a deal with Nexstar Media (NXST - Free Report) to acquire 11 local TV stations for an all-cash deal worth $740 million. This apart, the company announced an agreement with Cooper Media to acquire 85% stake in Justice Network and Quest, two leading 24/7 multicast networks, for an all-cash deal worth $77 million.
Management expects the latest acquisition deal combined with the 11 local TV stations of Nexstar Media to expand its total household reach to nearly 32% on a UHF discounted basis and 39% on an undiscounted basis.
Increasing Leverage: A Concern
TEGNA will finance the acquisition by using available cash and tapping into its existing credit facility.
Post completion of all the acquisitions (including Nexstar Media and Cooper Media deals), leverage is expected to increase to roughly 4.8 times. Management expects to use free cash flow to reduce leverage to roughly 4 times by the end of 2020.
Notably, following the latest acquisition announcement, Moody’s Investors Service has placed TEGNA’s Ba2 corporate family rating (CFR), Ba1-PD probability of default rating (PDR), Ba2 ratings on its senior unsecured notes (including the 2027 unsecured notes issued by Belo Corp.) and senior unsecured bank credit facility under review for downgrade.
Currently, TEGNA has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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