Gannett Soars on $1.5 Billion Broadcast Deal
Upated from 4:31 p.m. ET to include Standard & Poor's ratings action.
NEW YORK (TheStreet) -- Newspaper conglomerate Gannett
Gannett will acquire Belo for $13.75 per share in cash and assume $715 million in debt.
A clear financial rationale presented by Gannett and a strong investor reaction that put shares at five-year highs on Thursday indicates the deal may be a turning point for the 90-year old publisher.
Shares of McLean, Virginia-based Gannett soared 34% Thursday to close at $26.60. Belo shares closed up over 28% to $13.77, two cents above Gannett's offer price.
With Belo, Gannett will become the country's fourth-largest owner of affiliate-TV stations, reaching nearly one-third of U.S. households. Those businesses will help diversify Gannett from its lower-profit margin newspaper and online media businesses.
Overall, Gannett will increase its broadcast portfolio from 23 to 43 stations and will take over as the lead affiliate for CBS
Thursday's merger will generate about $175 million in annual synergy within three years of the deal's close, Gannett said in a statement. The merger is also expected to add to non-GAAP earnings per share by approximately $0.50 within the first 12 months and significantly increase Gannett's free cash flow.
While Gannett's acquisition values Belo at a multiple of 9.4 times earnings before interest, taxes, depreciation and amortization (EBITDA), the deal comes at just a 5.4x EBITDA multiple when assuming the projected synergy.
While Gannett continues to earn the bulk of its over $5 billion in annual revenue from newspaper and publishing businesses such as USA Today, the acquisition of Belo may more than double its broadcast business to over $2 billion in annual sales.
"We have been successfully transforming Gannett into a diversified multi-media company with broadcast, digital and publishing components across high-growth markets nationwide, and this is another important step in the process," Gracia Martore, Chief Executive Officer of Gannett, said in a statement.
"This is an outstanding and financially compelling transaction for our shareholders," Dunia A. Shive, Belo's CEO said in a statement.
In 2008, Dallas-based Belo split its broadcast media business from A.H. Belo