ATLANTA — Share of Gray Television gained 15 percent this morning on the news that it and Excalibur Broadcasting are buying 17 TV stations between them for a total of $342.5 million. The pair will take 15 TV stations from Hoak Media, Prime Cities and Parker Broadcasting for $335.0 million in cash plus a working capital adjustment. Separately, Excalibur is acquiring two Fox affiliates in one of the markets served by Hoak from Prime Cities for $7.5 million cash. The transactions put Gray in five new markets and Excalibur in four. All are in primarily Midwestern markets. Gray shares (NYSE: GTN) went from around $9.40 at close on Tuesday to more than $11 briefly on Wednesday morning before settling down around $10.80. Year-to-date, Gray shares have climbed 390 percent.
“Today’s announcement was a nice positive surprise—we were not certain whether or not GTN would be able to ‘win’ the Hoak assets from other more aggressive buyers, particularly [Nextstar],” Wells Fargo’s Marci Ryvicker said. “While the multiple might be slightly higher than some of the other private company deals, we are not surprised here given the affiliate mix as well as the fact that the Hoak deal was likely one of the more aggressive auctions. We view this announcement as a positive and potentially transformative deal for GTN.”
Gray said it expects that the transactions will provide significant free cash flow and be immediately accretive. It also said around $5 million in operating synergies had been identified, yielding a pro forma price multiple of 6.8x 2013-14 average earnings before interest, taxes, depreciation and amortization. “We believe synergies are coming both from retrans as well as duopoly markets,” Ryvicker said. “For reference, GTN currently trades at [approximately]10x blended EBITDA. Based on the 6.8x buyer’s multiple, we calculate an additional $50.4 million of EBITDA, or [approximately] 39 cents of FCF/share… compared to our current 2013E/2014E blended FCF/share estimate of $1.04. Applying a 10x multiple equates to another $3.90 of equity value per share.”
Under its agreement with Hoak, Gray will acquire the following television stations:
STATION
AFFILIATION
MARKET
DMA
KSFY
ABC/CW
Sioux Falls, S.D.
111
KABY*
ABC
Sioux Falls, S.D.
111
KPRY*
ABC
Sioux Falls, S.D.
111
KVLY
NBC
Fargo-Valley City, N.D.
116
KNOE
CBS/CW
Monroe- El Dorado, La.
137
KFYR
NBC
Minot-Bismarck-Dickinson, N.D.
145
KMOT*
NBC
Minot-Bismarck-Dickinson, ND
145
KUMV*
NBC
Minot-Bismarck-Dickinson, N.D.
145
KQCD*
NBC
Minot-Bismarck-Dickinson, N.D.
145
WMBB
ABC
Panama City, Fla.
154
KALB
NBC/CBS
Alexandria, La.
179
KREX
CBS
Grand Junction-Montrose, Colo.
185
KREY*
CBS
Grand Junction-Montrose, Colo.
185
KREG*
CBS
Grand Junction-Montrose, Colo.
185
KNOP
NBC
North Platte, Neb.
208
KIIT-LP
FOX
North Platte, Neb.
208
* satellite station
Due to regulatory requirements, Gray will sell Hoak’s television stations in the Panama City and Grand Junction markets to one or more independent third parties.
Excalibur has reached separate definitive agreements with Hoak and Parker to acquire the following television stations:
STATION
AFFILIATION
MARKET
DMA
KHAS
NBC
Lincoln-Hastings-Kearney, Neb.
105
KXJB
CBS
Fargo-Valley City, N.D.
116
KAQY
ABC
Monroe-El Dorado, La.
137
KFQX
FOX
Grand Junction-Montrose, Colo.
185
Due to regulatory requirements, Excalibur will sell Parker’s television station in the Grand Junction market to an independent third party.
Separate from the Hoak and Parker transactions, Excalibur has reached a definitive agreement with Prime Cities to acquire the following television stations:
STATION
AFFILIATION
MARKET
DMA
KNDX
FOX
Minot-Bismarck-Dickinson, N.D.
145
KXND*
FOX
Minot-Bismarck-Dickinson, N.D.
145
* satellite station
Gray and Excalibur have agreed to enter into shared services agreements through which Gray will provide back-office services and limited programming to Excalibur’s stations in the Lincoln, Fargo, Bismarck, and Monroe markets. The SSAs will commence upon Excalibur’s purchase of those stations. Gray and Excalibur will enter into put-and-call option agreements through which Gray could acquire these stations when permitted by applicable law.
When combined with Gray’s existing station portfolio, Gray will own and/or operate two Big Four network affiliated channels in six of the seven Hoak markets. Pending completion this and other transactions, Gray will own and/or operate 123 “distinct channels” in 39 markets, 29 of them rated No. 1, according to Gray. It will have duopolies in 16 markets and reach 7.33 percent of U.S. TV households.
The parties expect the transactions announced today to close following receipt of regulatory and other approvals in the first or second quarter of 2014. Gray and Excalibur expect to finance their respective transactions with new term loans, cash on hand and/or by accessing the capital markets.
Wells Fargo Securities, LLC served as financial advisor and Dow Lohnes PLLC served as primary legal counsel for Gray. Jack Goodman served as legal counsel for Excalibur. Moelis & Company LLC served as financial advisor and Akin Gump Strauss Hauer and Feld, LLP served as primary legal counsel for Hoak. Kepper, Tupper & Co. served as financial advisor and Denton served as primary legal counsel for Prime Cities.
Gray expects that Excalibur will be considered to be a variable interest entity under Financial Accounting Standards Board Accounting Standards Codification Topic 810, Consolidation, thereby requiring consolidation of Excalibur with Gray. As such, Gray expects that its financial results will consolidate the accounts of Excalibur.
