Analysts OK Sinclair’s $385 Million Purchase of Freedom Stations

BALTIMORE: Sinclair is making smart acquisitions, according to Marcy Ryvicker of Wells Fargo.

“We like SBGI’s recent acquisitions of Freedom and Four Points stations for several reasons,” she wrote. One is that Sinclair snagged the eight Freedom Communications stations for $385 million, or a reasonable 6.6x blended EBITDA. Another is that it gives Sinclair a duopoly in West Palm Beach, Fla., where the company scored CW affiliate WTVX-TV from Four Points in September.

The Freedom transaction, announced today, includes eight stations in seven markets reaching 2.6 percent of U.S. TV households:

The eight stations to be acquired are:
~ WPEC-TV (CBS 12) in West Palm Beach, Fla. (DMA 38)
~ WWMT-TV (CBS 3) in Grand Rapids/Kalamazoo/Battle Creek, Mich. (DMA 42)
~ WRGB-TV (CBS 6) and WCWN-TV (CW 45) in Albany, N.Y. (DMA 58)
~ WTVC-TV (ABC 9) in Chattanooga, Tenn. (DMA 86)
~ WLAJ-TV (ABC 3) Lansing, Mich. (DMA 115)
~ KTVL-TV (CBS 10) in Medford-Klamath Falls, Ore. (DMA 140)
~ KFDM-TV (CBS 6) in Beaumont-Port Arthur-Orange, Texas (DMA 141)

Freedom’s secondary channels, including the CW affiliates in Kalamazoo, Lansing, Medford and Beaumont, are also included.

The transaction is subject to Freedom's shareholder approval, which must be obtained by Nov. 8, 2011, approval by the Federal Communications Commission and customary antitrust clearance. Following receipt of antitrust approval--expected to occur within 30 days--and prior to closing of the acquisition, Sinclair will operate the stations pursuant to a Local Marketing Agreement. The companies anticipate closing and funding of the acquisition to occur late in the first quarter and/or early in the second quarter of 2012.

Upon closing, Sinclair expects to finance the $385 million purchase price, less a $38.5 million deposit payable upon Freedom shareholder approval, either through a bank loan or by accessing the capital markets.

“Not only will this transaction, when coupled with the Four Points transaction, result in us owning two full-power stations in compliance with FCC regulations in West Palm Beach, Freedom’s largest market, but it allows us to expand our middle market position and network diversification,” said Sinclair chief David Smith. “We believe our expertise and presence will enable us to improve the stations’ competitive position and profitability. We look forward to welcoming the Freedom employees to the Sinclair family.”

The acquisition will bring Sinclair’s stable of TV stations to 73 owned and/or managed in 46 markets, reaching 26.3 percent of U.S. TV households. The company’s affiliate breakdown will include 20 Foxes, 18 MNT’s, 13 CW’s, 11 ABCs, nine CBS’s, one each NBC and Azteca station. The Four Points deal brought in seven TV stations for $200 million. Sinclair started operating those under LMA Oct. 1, 2011.

Together, Ryvicker estimates that the two transactions will add an average of $59 million a year in free cash flow to Sinclair’s balance sheet--$65 million in political and $53 million in non-political years.

Sinclair (NASDAQ: SBGI) shares shot up from around $9 yesterday to more than $10 today after the acquisition announcement and its third-quarter earnings release. Sinclair reported net broadcast revenues of $151.7 million for the quarter ending Sept. 30, down 4.5 percent from the same period a year ago. Operating income was $52.2 million versus $56.1 million. Net income attributable to the broadcast group was $19.2 million, up 34 percent from a year ago. Diluted earnings per common share were 24 cents versus 18 cents.

Political was $2.4 million in the third quarter compared to $9.8 million last year. Local revenues, including retrans and times sales, increased 1.2 percent. National dropped 19.2 percent. Excluding political, local was up 3.2 percent; national, down 8.9 percent.

Capitol expenditures for 3Q were $6.1 million. Debt on the balance sheet, net of $61.4 million in cash, was $1.14 billion as of Sept. 30, versus net debt of $1.16 billion as of June 30, 2011.

For 4Q11, Sinclair expects revenues to come in between $178 million and $181 million, down 4.7 to 6.3 percent due to it being a non-election year.

Capex in 4Q is expected to be $9.7 million and total $36.5 million for the year.

“We are pleased that advertising spending on our stations continues to grow despite the volatility in the financial markets and economic concerns in the U.S. and abroad,” said David Amy, Sinclair’s chief financial officer. “While there is an underlying sense of caution by advertisers, this is more than offset by the growth in key advertising categories such as automotive, our largest advertising category.

“The upcoming presidential election and the economic issues facing our country are also driving increased political spending. For the year, we are estimating that revenues from political issue and candidate spending will total approximately $7.7 million, which is a 10.8 percent increase over 2009 and a 54.7 percent increase over 2007, the last two non-election year cycles.”

~ Deborah D. McAdams, Television Broadcast

Also see, “Sinclair Calls for Spectrum Inventory