By William Launder and Ben Fox Rubin
TV broadcaster Media General Inc. agreed to buy LIN Media LLC
for $1.6 billion in cash and stock, a sign that heightened
regulatory scrutiny of TV station ownership practices hasn't put
the brakes on industry consolidation.
Friday's deal is the latest in a string of broadcast-company
acquisitions totaling $11.4 billion in 2013 alone, according to SNL
Kagan. It more than doubles Media General's station count to 74
from 31. That makes the company the second biggest pure-play
broadcast company reaching 23% of U.S. television households, after
Sinclair Broadcast Group.
It is also the second acquisition Media General has struck in
less than a year: last November it completed the acquisition of
Young Broadcasting, increasing its station ownership to 31 from 18
to. In the latest deal, Media General is swallowing a company three
times its market capitalization; Lin's CEO Vince Sadusky will run
the combined company.
The rapid pace of acquisitions in the TV-station industry in the
past couple of years has been fueled by rising fees paid to station
owners by cable and satellite operators for the right to carry
station signals. Increased size gives station owners more leverage
to negotiate higher fees from cable and satellite operators,
executives say. Station owners also hope to get more bargaining
power with content owners.
"We are operating in a media world that is largely
consolidated," Mr. Sadusky told investors on a conference call
Friday, noting that "a handful" of major studios produce most of
the content while there are "just a handful of networks and...a
very scaled-up pay-TV universe."
The combination would present opportunities for "incremental
leverage" in the company's negotiations with pay-TV operators,
helping close what he described as a "tremendous gap" between the
fees it receives and its stations' viewership, he said.
The deal comes amid heightened regulatory scrutiny of one aspect
of the acquisitions: the use of agreements between TV-station
owners in the same market to share services in areas like ad sales.
While these agreements have been in use for years, critics have
questioned whether acquirers are using them to circumvent station
ownership rules. The Justice Department sued to block one such
agreement tied to Gannett Co.'s $1.5 billion purchase of Belo Corp.
last year. Proposed new Federal Communications Commission rules
could require the arrangements to be curtailed.
LIN has some of these arrangements with certain stations, which
executives acknowledged would be reviewed by regulators. The
companies also will be required to divest stations in five
markets--Savannah, Ga.; Mobile and Birmingham, Ala.; Green Bay,
Wis.; Providence, R.I.--where they both already own stations and
would otherwise risk violating FCC rules prohibiting direct
ownership of more than one station in a local market.
George Mahoney, Media General's CEO, refuted one analyst's
suggestion that Media General and LIN would be pressured to sell
the stations on the cheap to comply with the FCC rules. "These do
not go out at fire sale prices," he said, noting that the companies
have already received requests from potential buyers. "Our emails
have already been lighting up this morning."
Mr. Sadusky said the regulatory scrutiny didn't change the
strategic rationale for getting bigger. "The overall operation of
those TV stations from a scale perspective is more critical than
ever," he told investors.
The regulatory crackdown "hasn't stopping the deal making, but
it is complicating things," said Larry Patrick, managing partner of
Patrick Communications, an adviser to local station groups. Mr.
Patrick estimated the consolidation round is in its "sixth or
seventh inning," meaning there is still room for smaller
acquisitions.
Under the terms of the deal, LIN shareholders will receive cash
and stock worth about $27.82 for each of their shares. LIN Media
shareholders will own about 36% of the new combined company and
Media General shareholders will hold the rest.
The deal comes nearly two years after Media General divested the
bulk of its newspaper holdings to a subsidiary of Berkshire
Hathaway Inc., making Media General a broadcast- and
digital-media-focused company. At the time of the deal, Media
General separately arranged a loan from Berkshire Hathaway to help
it pay down debt. Today, Berkshire owns around 5% of the
company.
Write to William Launder at william.launder@wsj.com and Ben Fox
Rubin at ben.rubin@wsj.com
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