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The local television business is a hot commodity again. With the 2020 election (and the advertising windfall that accompanied it) in the rearview mirror, owners of local TV stations are once again weighing to get bigger, or sell to the highest bidder.
The first major deal of 2021 comes via Gray Television, led by CEO Hilton Howell Jr., which announced a $925 million deal to acquire Quincy Media, led by president and CEO Ralph M. Oakley, a regional station owner that mostly operates in the Midwest United States.
Loop Capital analyst Alan Gould wrote in a Jan. 26 research note that Gray was his “favorite small-cap media name,” raising his valuation to $25 per share. Gould noted that Gray targets stations that are number one or two in their respective markets in an effort to maximize ad revenue, and that station ownership rules could be set to loosen.
Guggenheim Securities’ Curry Baker and Michael Morris said in a note about Gray’s acquisition of Quincy that the deal will be “immediately accretive to [free cash flow] per share,” and is likely to secure regulatory approval, thanks to Gray divesting some Quincy stations in overlapping markets.
“We believe Gray is well-positioned to continue to over-index in retrans revenue and political and benefit from a significant retrans renewal cycle in 2021,” the Guggenheim analysts write.
“There have been very few, if any, leading local news stations offered for sale over the last 12 months or so. With the election now largely behind us, we expect some opportunities to rise,” Kevin Latek, Gray executive vp, told analysts during its last earnings call Nov. 7, foreshadowing the Quincy deal. “But as we have done previously, we plan to take a close look at any number one or strong number two ranked local television station offered for sale regardless of market size and we will evaluate its opportunity with a close eye on our balance sheet and market conditions.”
In recent years the local TV market has seen enormous consolidation, with a few station giants including Gray, Sinclair, Nexstar, Meredith and Byron Allen’s Entertainment Studios out opportunistically buying, and independent and regional station owners selling. One of the major local players, TEGNA, was also fielding buyout offers before the pandemic hit in early 2020.
For Howell, the acquisition of Quincy also reaffirms his strategy for Gray. “I will speak purely for myself personally, I still believe it is in the best interest of our shareholders to continue to grow this company and there is ample room for Gray to do so,” Howell told analysts on Gray’s earnings call, adding that he had purchased millions of dollars in Gray’s “grossly undervalued” stock, citing the “ridiculously large amounts of money” the stations have been throwing off in free cash flow.
“We are not going to let our stock price sit down here at these prices. This is ridiculous,” he added.
After announcing the deal February 1, Gray’s stock price rose by more than 6 percent, topping $18 per share.
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