Tribune Gets Better M&A Script In Second Season

By Breakingviews

Pulling the plug on its sale to Sinclair Broadcast (SBGI) was a shrewd move for Tribune Media (TRCO). The U.S. local-TV group is now selling itself to Nexstar Media (NXST) for $4.1 billion. This go-around looks like a stronger plot, given the higher price and the buyer's track record.

Sinclair secured Tribune's agreement to a $3.9 billion deal in 2017. To get U.S. regulators to approve the deal, though, it had to sell some stations. Instead of going through a fairly straightforward process, Sinclair raised the hackles of a very friendly Federal Communications Commission with side transactions involving buyers with serious conflicts of interest. The FCC was forced to investigate and Tribune called off the merger in August, suing Sinclair for good measure.

Nexstar, which had lost out to Sinclair in 2017, came back with an all-cash offer, topping Sinclair's earlier price by a hair and providing a premium of 15 percent, or $550 million, to Tribune's closing value on Friday. Cost savings of some $85 million, taxed at 21 percent and capitalized on a multiple of 10, more than cover that - and that figure for synergies doesn't include a squishier $75 million in anticipated additional revenue from distributors paying more to carry TV stations.

Perry Sook, Nexstar chief executive, intends to follow the regular playbook by divesting stations to meet the rule that no single local-TV group can cover more than 39 percent of American households, despite the fact FCC Chair Ajit Pai is anxious to ease that standard. Sook noted on Monday morning that he already received four calls of "inbound" interest from private equity - Apollo Global Management lost out to Nexstar to buy the whole of Tribune, Reuters reported - and strategic players. No doubt Rupert Murdoch is keen to add stations to Twenty-First Century Fox (FOX), too.

While Tribune's second-season script looks like an improvement, Nexstar may be in line for an Emmy Award for broadcasting M&A. Twice the Irving, Texas-based company has capitalized on others' missteps to its benefit. In 2017, it swooped in to buy Media General, blowing up an agreement with Meredith. Then on Monday it clinched Tribune, a combination that will make it the largest local-TV group in America.