Gray Television is already planning TV station divestitures as part of its $3.6 billion Raycom merger to smooth the regulatory process, and those sales could be worth around $210 million.
Jefferies analyst John Janedis said the nine stations in overlapping markets that Gray intends to sell off represent about $30 million in annual EBITDA and could garner about seven times that in a sale. He added that, given all the trouble Sinclair has gone through in its proposed $3.9 billion acquisition of Tribune Media, a planned divestiture is a smart idea.
“Rather than apply for waivers to permit duopolies in overlapping markets, GTN opted to divest 9 stations and expedite the regulatory process. Given how the SBGI/TRCO has been held up following a prolonged negotiation over duopolies (among other issues), GTN appears set on avoiding the same fate,” Janedis wrote in a research note.
The deal, which would give Gray a total of 142 full-power television stations in 92 markets and expand its audience reach to 24% of U.S. households, was praised by other analysts.
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Volker Moerbitz, Research Analyst with Kagan, S&P Global Market Intelligence, said the agreement will get Gray into many more top markets.
“Gray has always concentrated on small markets with their top-market being Knoxville, TN, ranked 61. Until today, Gray only covered nine mid-sized marks while everything else was smaller than rank 75. After the merger, the company will still be mainly a small market player, but they are now adding three top-25 markets and ten mid-sized markets, making it a more diversified portfolio,” Moerbitz wrote in a research note.
Moerbitz also applauded Gray’s move to schedule divestitures right off the bat.
“Overall, the deal gives Gray improved national scale to better position it to compete for ad dollars, and raise its leverage in negotiations with multichannel operators and network partners,” Moerbitz wrote.
Janedis was surprised that Gray seemingly accelerated its M&A strategy, but estimated the move could likely ramp up consolidation discussions for other top broadcast groups.
“Raycom has not historically been for sale, and we had previously expected GTN to grow through smaller transactions, but scale is becoming increasingly important. As we look ahead, we expect focus on [Meredith], [E.W. Scripps], and to a lesser extent, [TEGNA],” Janedis wrote.