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Sinclair Broadcast Group has struck a deal to acquire Tribune Media for $43.50 per share, or approximately $3.9 billion, the companies said Monday.
The terms of the agreement will see Sinclair acquire 100 percent of the stock in Tribune, and assume around $2.7 billion in debt. Tribune stockholders will receive $35 per share in cash and 0.23 shares of Sinclair class A stock for each Tribune class A and class B shares they own.
“This is a transformational acquisition for Sinclair that will open up a myriad of opportunities for the company,” Sinclair president and CEO Chris Ripley said Monday in a statement. On Sunday, Sinclair had reportedly been near a final agreement after 21st Century Fox and private equity firm Blackstone did not move forward with a possible joint bid for Tribune Media late last week.
Bids had been understood to be due Thursday. It wasn’t immediately clear why Fox and Blackstone didn’t submit an offer. Representatives declined to comment.
Tribune Media owns 42 TV stations, including Fox stations, as well as cable network WGN America and Tribune Studios. Ripley said the Tribune stations were “highly complementary” to Sinclair’s existing footprint and would create “nationwide media platforms” that includes major TV markets like Chicago and New York City.
Ripley during a late morning conference call told analysts that Sinclair was keen to retain Tribune’s 31 percent stake in the Food Network, but was “open” to channel partner Scripps Networks Interactive acquiring the minority stake should it choose to do so.
When Tribune first talked about possible asset sales as part of a strategic review, analysts mentioned controlling shareholder Scripps as the most likely buyer of the 31 percent stake in the Food Network if the price was right. The food-themed cable channel also offers new stake owner Sinclair cash distributions, estimated at $170 million in 2017.
Sinclair, including all pending transactions, owns, operates and/or provides services to 191 TV stations in 89 markets. Among them are 54 Fox affiliates, making it the largest Fox station group already. The Tribune Media deal will add to that.
Sinclair gave no word on possible job cuts at Tribune following the acquisition, but did point to “substantial synergistic value through operating efficiencies, revenue streams, programming strategies and digital platforms.” The deal is expected to close by the end of 2017.
Ripley also gave analysts color on a new programming strategy already underway at WGN America. That includes a shift from “high-cost originals” to more “cost-effective originals and re-runs.” The new scripted direction at the Tribune-owned channel includes WGN America recently cancelling its highest-rated scripted original, Outsiders, after two seasons.
For WGN America under new owner Sinclair, the move to lower-cost originals and re-runs comes as an era of peak TV on broadcast, cable, premium and streaming platforms has led industry players to pay ever-higher content prices to distinguish themselves from market rivals.
Ripley also warned investors that Sinclair may have to sell off Tribune stations in a few select markets to secure regulatory approval for the transaction.
Tribune CEO Peter Kern in his own statement said the deal with Sinclair “delivered significant value to our stockholders.” The $43.50 per share offer represents a 26 percent premium to the closing share price for Tribune on Feb. 28, when media speculation about a possible transaction first gathered pace.
Analysts and sources had said that 21st Century Fox considered a bid for Tribune to keep Sinclair from gaining more leverage in talks with the conglomerate at a time when retransmission consent fees (pay TV operators’ payment to broadcasters) and reverse compensation (stations’ payment to a network for being affiliated with it) have become growing revenue streams.
The Sinclair deal for Tribune is in part a vote of confidence in broadcasting networks as the majors finalize their fall programming schedules. As well, TV station groups have been seen as ripe for more consolidation amid recent regulatory changes.
The FCC recently reinstated what is known as the “UHF discount,” which excludes channels carried over UHF waves from the calculation for how many markets a station group operates in. FCC chairman Ajit Pai also recently said: “I’ll work aggressively to modernize the FCC’s rules, cut unnecessary red tape and give broadcasters more flexibility to serve their audiences.”
Analysts have said that a possible change to the 39.6 percent national ownership cap for TV station owners could be one key move down the line to ownership restrictions being significantly eased or eliminated altogether. And that could lead to more dealmaking in the sector, and possibly bidding wars for station groups.
May 8 12 noon Updated with comments by Sinclair executives during an analyst call.
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