The nine-station acquisition includes ABC affiliates in Denver, Indianapolis, San Diego, and Bakersfield, CA. When the transaction is complete, 10 of Scripps’ 19 stations will be ABC affiliates – making it the largest independent owner of ABC stations. McGraw-Hill’s other stations are low-power affiliates of Spanish language network Azteca America. Wells Fargo analyst Marci Ryvicker says this morning that the terms are “a positive for the broadcast TV space” because they reaffirm the value of stations at a time when potential buyers are growing concerned about the prospects for the ad market. Nexstar is still looking to sell. McGraw-Hill wanted to unload its stations as it prepares to split into two companies, and deal with shareholder concerns that it has become too unfocused. Here’s the release:
The E.W. Scripps Company (NYSE: SSP) has expanded its television footprint by agreeing to acquire the station group now owned by McGraw-Hill Broadcasting. Included in the transaction are four stations affiliated with the ABC television network:
KMGH in Denver, the country’s 17th-largest market
WRTV in Indianapolis, market #27
KGTV in San Diego, market #28
KERO in Bakersfield, Calif., market #125
The five other stations involved in the transaction – KZSD in San Diego, KZKC in Bakersfield, KZCO in Denver, KZFC in Ft. Collins, Colo., and KZCS in Colorado Springs, Colo. – are low-power stations affiliated with the Spanish-language network, Azteca America.
The nine McGraw-Hill stations, which reach approximately 3 percent of U.S. households and generated revenue in 2010 of $97 million, have roughly 460 total employees.
Scripps agreed to pay $212 million in cash for the nine stations. The deal is structured as a purchase of stock but will be treated as a purchase of assets for tax purposes, resulting in tax deductions created through the transaction that will be used by Scripps to reduce the net cash cost of the acquisition. The transaction is expected to be modestly accretive to Scripps’ earnings in the first full year of operations of the acquired stations.
Because of the current low-interest-rate environment, Scripps intends to finance the transaction with new debt and has secured committed financing for the purchase price. Choosing debt for the acquisition allows the company to preserve its financial flexibility. Scripps had $153 million in cash on its balance sheet as of August 31, 2011.
The transaction is subject to regulatory approvals and customary closing conditions.
“This is a terrific opportunity to enter some of America’s most dynamic media markets and tap into the growing Spanish-language marketplace at a very attractive price,” said Rich Boehne, Scripps president and chief executive officer. “The McGraw-Hill stations fit well with our strategy to create economic value through high-quality news and information content that serves both consumers and advertisers through linear television and the exploding array of digital communication devices.
“These stations came up for sale at a good time for Scripps,” Boehne said. “The deal is structured and financed in ways to protect the company’s financial flexibility and our ability to continue investing in emerging media business models. Through this acquisition, we now have the opportunity to extend our local news strategies into markets with big appetites for community-changing journalism.”
The acquisition of the McGraw-Hill stations will extend the Scripps relationship with ABC. With 10 ABC affiliates among its expanded roster of 19 stations, Scripps will be the country’s largest independent operator of ABC stations. The new stations join a Scripps portfolio that includes six ABC affiliates (in Detroit, Tampa, Fla., Cleveland, Phoenix, Cincinnati, and Baltimore), three NBC affiliates (West Palm Beach, Fla., Kansas City, Mo., and Tulsa, Okla.) and one independent (Lawrence, Kan.). The consolidated station group will reach approximately 13 percent of U.S. households.
“We’ve looked at several recent opportunities, but the McGraw-Hill stations were the first ones that truly energized our management team,” said Brian Lawlor, Scripps senior vice president of television. “The culture at these stations will fit well with ours, and I’m excited about the compelling benefits we can deliver to our viewers, advertisers and employees in these markets. In recent years we have ramped up our commitment to unique, high-quality local news, and we’re eager to have these new stations join us in that drive for success.”