TV station group stocks rose sharply Friday after Media General said it had agreed to acquire LIN Media in a deal valued at $1.6 billion.
The deal works out to $27.82 per share for LIN, a 28% premium to its trailing 20-day volume weighted average price on March 19 and one that was quickly eroded during an active trading day. LIN stock rose as high as $28.28 per share (up 32%) in early trading Friday, before closing at $26.31 per share, up 22.4%. Media General shares also went on a roller coaster – rising as much as 14% earlier Friday before closing at $17.61, up 1.6%.
News of the deal also boosted the broadcast sector, which had declined sharply in recent days as news broke of Federal Communications Commission moves to curb cooperative negotiations between stations in retransmission consent deals.
Large station groups like Sinclair Broadcasting Group and Nexstar Broadcast Group enjoyed early high single-digit gains before settling down later in the day. Sinclair closed at $27.45 on Friday (up 1.6%) while Nexstar closed at $36.26, up 2.75%.
Smaller station groups also saw gains – E.W. Scripps stock rose 2.6% 45 cents each) to $17.66 per share and Gray Television closed at $9.91, up 4.5%.
The deal is expected to create the second largest pure-play TV station group n the country. According to the parties, the new entity, which will be called Media General, will have the No. 1 or No.2 broadcast station in 33 markets.
That added scale should help in retransmission consent negotiations with distributors. And it could help offset the blow from potentially more onerous federal regulations. Earlier this month Federal Communications Commission chairman Tom Wheeler proposed eliminating coordinated retrans negotiations between top stations in local markets.
Neither company would say when its next retrans deals are due, but on a conference call with analysts to discuss the merger, Media General CEO George Mahoney said his company has one network affiliate deal with ABC set to expire by Dec. 31 and seven agreements with CBS are set to come due between the end of the year and the first five months of 2015.
The merger also will combine two strong local news operations and present additional opportunities for content creation. The combination also brings about $70 million in synergies, which the companies believe will be realized in the next three years.
“[The transaction] increases our scale, geography and broadcast network diversification diversity,” Mahoney said on the call. “We bring very strong news organizations from both sides into this combined company [and] we will have a very significant and growing presence in attractive political markets …”
Both companies have said they will likely divest stations in markets where they own more than one property – Birmingham and Mobile, Ala.; Green Bay, Wis.; Savannah Ga.; and Providence, R. I.
“We couldn’t help but be very mindful of the regulatory environment as we were putting this transaction together,” Mahoney said. “We are going to work cheerfully with the FCC and are committed to moving this transaction forward very promptly. We’re clear that certain stations will have to be swapped or sold. Suffice it to say that we recognize the issue and we are going to work very constructively and creatively with the FCC to make sure that we close this transaction as quickly as possible.”