Nexstar's $6.4 Billion Tribune Buy Spurs More Dealmaking

Cable Mergers Illustration - H 2013
Illustration by: Pawe? Jo?ca

Cable Mergers Illustration - H 2013

Nexstar CEO Perry Sook is set to divest stations in 13 markets as the deal could end a $1 billion lawsuit between Tribune and Sinclair.

Tribune Media's $6.4 billion sale to Nexstar Media Group is already having ripple effects on the industry.

For one, Nexstar chairman, president and CEO Perry Sook intends to divest stations in 13 markets where Nexstar and Tribune overlap in order to facilitate the regulatory process, and Bloomberg reports that Cerberus Capital Management, Apollo Global Management, EW Scripps, Gray Televsion, Meredith Corp. and Tegna are interested. As a group, the stations could fetch $1 billion.

Meanwhile, Tribune's sale to Nexstar will be much less contentious than the attempt by Sinclair Broadcast Group to acquire Tribune. The deal propels Nexstar past Sinclair as the nation's largest operator of TV stations, reaching 50 percent of US homes but below the 70 percent a combined Sinclair-Tribune would have reached, a number that clearly bothered regulators.

And should Nexstar-Tribune sell off that $1 billion worth of stations in overlapping markets, the combined company's reach could get to about 39 percent of the country, which, technically, is the maximum tolerated by federal authorities.

Plus, the Dec. 3 Nexstar-Tribune pact (which includes $2.3 billion in acquired debt) could end a $1 billion lawsuit between Tribune and Sinclair, which are accusing each other of not negotiating in good faith after the latter's failed bid to acquire the former. Sinclair, after all, was only to pay $3.9 billion for Tribune (not including debt), whose shareholders should be satisfied with the additional cash that Nexstar is paying.

"There's no harm, so no scope for damages," says analyst Barton Crockett of B. Riley FBR.

Should regulators greenlight the Nexstar-Tribune merger, it will signal that Sinclair and others are free to make other acquisitions. Cox Communications is in play, for example, and Tegna and Sinclair are said to be kicking the tires.

Attorneys, though, already are soliciting Tribune shareholders who wanted more than the $46.50 per share that Nexstar is paying and would therefore be willing to participate in a potential class-action lawsuit.

Before the announcement, Tribune shares traded for $40.26. But Crockett argues that the merger could boost Nexstar's two-year average free cash flow by 46 percent: "This fact trounces potential nitpicking on relative price and highlights what we have argued for some time: that TV station groups are undervalued."

This story appears in the Dec. 5 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.