Deborah D. McAdams /
11.20.2013 01:44 PM
Street Smiles on Gray-Excalibur $335 Million, 15-Station Acquisition
Free cashflow conversion of 45 percent projected
ATLANTA — Share of Gray Television gained 15 percent this morning on the news that it and Excalibur Broadcasting are buying 17 TV stations between them for a total of $342.5 million. The pair will take 15 TV stations from Hoak Media, Prime Cities and Parker Broadcasting for $335.0 million in cash plus a working capital adjustment. Separately, Excalibur is acquiring two Fox affiliates in one of the markets served by Hoak from Prime Cities for $7.5 million cash. The transactions put Gray in five new markets and Excalibur in four. All are in primarily Midwestern markets. Gray shares (NYSE: GTN) went from around $9.40 at close on Tuesday to more than $11 briefly on Wednesday morning before settling down around $10.80. Year-to-date, Gray shares have climbed 390 percent.

“Today’s announcement was a nice positive surprise—we were not certain whether or not GTN would be able to ‘win’ the Hoak assets from other more aggressive buyers, particularly [Nextstar],” Wells Fargo’s Marci Ryvicker said. “While the multiple might be slightly higher than some of the other private company deals, we are not surprised here given the affiliate mix as well as the fact that the Hoak deal was likely one of the more aggressive auctions. We view this announcement as a positive and potentially transformative deal for GTN.”

Gray said it expects that the transactions will provide significant free cash flow and be immediately accretive. It also said around $5 million in operating synergies had been identified, yielding a pro forma price multiple of 6.8x 2013-14 average earnings before interest, taxes, depreciation and amortization. “We believe synergies are coming both from retrans as well as duopoly markets,” Ryvicker said. “For reference, GTN currently trades at [approximately]10x blended EBITDA. Based on the 6.8x buyer’s multiple, we calculate an additional $50.4 million of EBITDA, or [approximately] 39 cents of FCF/share… compared to our current 2013E/2014E blended FCF/share estimate of $1.04. Applying a 10x multiple equates to another $3.90 of equity value per share.”

Under its agreement with Hoak, Gray will acquire the following television stations:

STATION

AFFILIATION

MARKET

DMA





KSFY

ABC/CW

Sioux Falls, S.D.

111

KABY*

ABC

Sioux Falls, S.D.

111

KPRY*

ABC

Sioux Falls, S.D.

111

KVLY

NBC

Fargo-Valley City, N.D.

116

KNOE

CBS/CW

Monroe- El Dorado, La.

137

KFYR

NBC

Minot-Bismarck-Dickinson, N.D.

145

KMOT*

NBC

Minot-Bismarck-Dickinson, ND

145

KUMV*

NBC

Minot-Bismarck-Dickinson, N.D.

145

KQCD*

NBC

Minot-Bismarck-Dickinson, N.D.

145

WMBB

ABC

Panama City, Fla.

154

KALB

NBC/CBS

Alexandria, La.

179

KREX

CBS

Grand Junction-Montrose, Colo.

185

KREY*

CBS

Grand Junction-Montrose, Colo.

185

KREG*

CBS

Grand Junction-Montrose, Colo.

185

KNOP

NBC

North Platte, Neb.

208

KIIT-LP

FOX

North Platte, Neb.

208

* satellite station



Due to regulatory requirements, Gray will sell Hoak’s television stations in the Panama City and Grand Junction markets to one or more independent third parties.

Excalibur has reached separate definitive agreements with Hoak and Parker to acquire the following television stations:

STATION

AFFILIATION

MARKET

DMA





KHAS

NBC

Lincoln-Hastings-Kearney, Neb.

105

KXJB

CBS

Fargo-Valley City, N.D.

116

KAQY

ABC

Monroe-El Dorado, La.

137

KFQX

FOX

Grand Junction-Montrose, Colo.

185

Due to regulatory requirements, Excalibur will sell Parker’s television station in the Grand Junction market to an independent third party.

Separate from the Hoak and Parker transactions, Excalibur has reached a definitive agreement with Prime Cities to acquire the following television stations:

STATION

AFFILIATION

MARKET

DMA





KNDX

FOX

Minot-Bismarck-Dickinson, N.D.

145

KXND*

FOX

Minot-Bismarck-Dickinson, N.D.

145

* satellite station



Gray and Excalibur have agreed to enter into shared services agreements through which Gray will provide back-office services and limited programming to Excalibur’s stations in the Lincoln, Fargo, Bismarck, and Monroe markets. The SSAs will commence upon Excalibur’s purchase of those stations. Gray and Excalibur will enter into put-and-call option agreements through which Gray could acquire these stations when permitted by applicable law.

When combined with Gray’s existing station portfolio, Gray will own and/or operate two Big Four network affiliated channels in six of the seven Hoak markets. Pending completion this and other transactions, Gray will own and/or operate 123 “distinct channels” in 39 markets, 29 of them rated No. 1, according to Gray. It will have duopolies in 16 markets and reach 7.33 percent of U.S. TV households.

The parties expect the transactions announced today to close following receipt of regulatory and other approvals in the first or second quarter of 2014. Gray and Excalibur expect to finance their respective transactions with new term loans, cash on hand and/or by accessing the capital markets.

Wells Fargo Securities, LLC served as financial advisor and Dow Lohnes PLLC served as primary legal counsel for Gray. Jack Goodman served as legal counsel for Excalibur. Moelis & Company LLC served as financial advisor and Akin Gump Strauss Hauer and Feld, LLP served as primary legal counsel for Hoak. Kepper, Tupper & Co. served as financial advisor and Denton served as primary legal counsel for Prime Cities.

Gray expects that Excalibur will be considered to be a variable interest entity under Financial Accounting Standards Board Accounting Standards Codification Topic 810, Consolidation, thereby requiring consolidation of Excalibur with Gray. As such, Gray expects that its financial results will consolidate the accounts of Excalibur.



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