Gannett agrees to buy Belo for $1.5 billion in cash; deal would boost TV operations

NEW YORK, N.Y. – Gannett Co., the publisher of USA Today, is buying TV station owner Belo Corp. for about $1.5 billion. If approved, the all-cash deal will make Gannett the fourth-largest broadcast group in the U.S.

Gannett already owns television stations as well as dozens of newspapers. But the deal transforms Gannett from “a newspaper company with broadcast and digital assets to being a broadcast company with strong newspaper and digital assets,” said Ken Doctor, a media analyst with Outsell Inc.

Under the agreement announced Thursday, Gannett will pay $13.75 per share for the Dallas-based TV station operator. That represents a 28 per cent premium over Belo’s closing stock price on Wednesday.

The acquisition nearly doubles Gannett’s portfolio of stations from 23 to 43, reaching nearly one-third of U.S. households. Gannett, which is based in McLean, Va., will own 21 stations in the country’s top 25 television markets. The company said the deal will give it access to what it said are some of the fastest-growing television markets, including Dallas, Houston, San Antonio and Austin, Texas, as well as Seattle and Portland, Ore.

The move should help stabilize Gannett at a time when the newspaper business is faltering. Last year, revenue at Gannett’s publishing business fell nearly 3 per cent to $3.7 billion, compared with a year earlier. By contrast, broadcast revenue grew more than 25 per cent to $906 million, much of it from political advertising.

In recent months, Gannett’s newspapers have turned to a new revenue source: charging readers fees to access many of their websites. Because of that, revenue in the publishing division was mostly unchanged at $871 million in the first three months of the year.

But broadcast revenue during the same period grew nearly 9 per cent to $192 million, even without major political campaigns.

In the latest quarter, earnings increased 53 per cent to $105 million, boosted by a tax benefit and the new website fees. The company’s revenue was up less than 2 per cent, meeting Wall Street’s expectations.

Doctor said the deal will give Gannett more negotiating clout over fees that local TV stations get from cable and satellite TV companies for the right to include those stations on cable and satellite systems.

“The pressures on profit in the newspaper sector are much greater than in the broadcast sector,” the analyst said.

Gannett, the largest U.S. newspaper publisher by circulation, also will assume $715 million in debt. Gannett said it is paying for Belo with cash it has or plans to borrow.

After the announcement, the stocks of both companies soared to their highest levels since 2008. Belo Corp.’s shares jumped $3.04, or 28 per cent, to close at $13.77, the high for the day. Gannett’s stock rose $6.75, or 34 per cent, to $26.60 after peaking at $26.75.

Gannett President and CEO Gracia Martore called the acquisition an important step in Gannett’s diversification and said it will significantly improve the company’s cash flow and financial strength.

“We have been successfully transforming Gannett into a diversified multimedia company with broadcast, digital and publishing components across high-growth markets nationwide,” Martore said in a conference call with analysts.

Gannett expects the deal to increase its adjusted earnings by 50 cents per share within the first 12 months and generate $175 million in annual cost savings within three years after closing.

Belo President and CEO Dunia Shive said the sale is an “outstanding and financially compelling transaction” for her company’s shareholders.

The deal, which has been approved by the boards of both companies, is expected to close by the end of 2013. It needs approval from the Federal Communications Commission and at least two-thirds of Belo shareholders.

The FCC may require Gannett to sell some stations or newspapers it owns because of rules restricting multiple media outlets in the same market. The companies said only five markets are potentially affected — Phoenix, St. Louis, Portland/Salem, Ore., Louisville, Ky., Tucson, Ariz.

Belo executives and shareholders representing about 42 per cent of the company’s voting power have agreed to support the sale, the companies said.