Gray to Buy Raycom, Divest Overlaps for Quick Regulatory OK
Gray Television agreed to buy Raycom for $3.6 billion, creating the No. 3 U.S. broadcast group, they announced Monday. It includes divestiture of nine stations in markets where the companies overlap, and their combined reach would be 24 percent without the UHF discount, executives told investors. That’s intended to give the acquisition a smooth ride through the regulatory approval process, said Gray Executive Vice President Kevin Latek. “We are doing that on purpose,” he said, calling the plan “the realistic approach.” Latek expects the deal to close in Q4.
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The company would have 142 TV stations in 92 markets, falling to 133 after divestitures. Sixty-two are “ranked first in all-day Nielsen ratings in their local markets,” the release said. The combination would have “the highest number of top-ranked television stations owned by any broadcaster,” it said. Gray also will own Raycom’s nonbroadcast businesses, which include marketing and production company Raycom Sports and automotive production company RTM Productions. Raycom will spin off its print business Community Newspaper Holdings and digital ad platform PureCars, Raycom CEO Pat LaPlatney said. LaPlatney and other Raycom executives will join Gray as part of the deal (see 1806250010).
TV executives and analysts saw dealmaking largely frozen while the industry waits to see how the FCC and DOJ will treat the long-pending Sinclair/Tribune (see 1806140055). The freeze remains but doesn’t prevent deals if the conditions are right, said BIA/Kelsey Chief Economist Mark Fratrik. “Opportunity melts the freeze,” concurred media broker Frank Kalil, president of Kalil & Co. Broadcasters like Gray and Raycom are seeking to grow in the changing market, said Fletcher Heald broadcast attorney Frank Jazzo.
Gray could have pursued duopolies in some of the overlap markets under current FCC rules but chose not to, Latek said. The companies “decided early on” to divest and aim for a quick approval instead, he said. Gray is separately waiting for approval of a top-four duopoly in Sioux Falls, South Dakota (see 1806080055), which could be the first such application the FCC acts on.
Since the deal avoids any strain on ownership regulations, there’s no reason to think it won’t be approved, Jazzo said. Latek said the transaction’s cap number was calculated as though the UHF discount already had been phased out, and had to look up the current ownership reach with the discount -- 17 percent -- in response to a question. Considering ownership rules uncertainty, Gray’s cautious approach is understandable, Jazzo said. Future dealmaking depends on “how frustrated and how flexible buyers and sellers are,” Kalil said. “It’s not an exact science.” Gray executives said they don’t expect the combined company to engage in any large scale deals for the next few years.
The takeover came is expected to be “a clear catalyst” for Gray, Wells Fargo analyst Marci Ryvicker emailed investors. “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,” wrote S&P Global Market Intelligence Research Analyst Volker Moerbitz. Gray closed up 16 percent at $14.85 Monday. “Investors like this deal,” Kalil said.
The transaction's smaller size and focus on smaller markets than Sinclair/Tribune doesn’t ameliorate the negative effects of media consolidation, emailed Free Press Policy Analyst Dana Floberg. “Communities are demanding more media competition, more diverse voices, and more deep local news coverage, and wiping a competitor from the market certainly won't help,” Floberg said. “Each of these companies is profitable but Wall Street wants more growth, so consolidation is the answer they run to.”