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Gannett buys Belo

For the sake of growth in an increasingly splintered television broadcast marketplace, it seems that these days everyone is getting into bed with his or her competitors. The looming broadcast auctions and apparently easily available bank financing have prompted independent station group mergers at a pace and scope never before seen.

Following last week's announcement that Media General, and Young Broadcasting would merge their assets, McLean, Va.-based Gannett Company said it has agreed to buy Belo Corporation, headquartered in Dallas, for $2.2 billion.

The deal makes Gannett the fourth largest owner of TV network affiliates, now — with Belo’s 20 stations — owners and/or operators of some 43 stations that reach about one-third of U.S. households. (The No. 1 independent station group is Baltimore-based Sinclair Broadcast Group, with its 87 stations.)

The merger makes good business sense for Gannett, as many of Belo’s TV stations — nine in the top 25 markets — are located in Texas and the Pacific Northwest where Gannett does not have a major presence. Gannett Co. also owns many large newspapers (82 newspapers nationwide), including the Detroit Free Press and USA Today.

In a statement, Gannett CEO Gracia Martore said the deal would “significantly improve our cash flow and financial strength, enabling us to quickly pay down debt while remaining committed to disciplined capital allocation.”

Gannett said it would acquire all outstanding shares of Belo for $13.75 per share in cash, or about $1.5 billion, and assume $715 million in existing debt. The boards of directors of both companies have unanimously approved the deal.

In a conference call with analysts Martore said the merger makes Gannett Co. “a true super group.”

With 21 stations of its own in the top 25 markets, Gannett now becomes the largest CBS affiliate group, the largest NBC affiliate group and the fourth largest ABC affiliate group.

Gannett said it would “restructure ownership” of Belo stations in the five markets where Gannett also owns a station. In an employee memo, reported by USA Today, Gannett said it’ll provide support services to stations in Louisville, Phoenix, Portland, St. Louis and Tucson, and added that these stations will be separately owned. Other Belo stations will be fully integrated into Gannett's broadcast division.

Interestingly, the combined company now also owns a newspaper (the Tucson Citizen) and a TV station (KTTU-TV, a MYTV network affiliate) serving the same Tucson, AZ, market, which is not allowed under current FCC rules on cross-ownership.

USA Today said that Gannett currently derives more of its revenue from the print business, but after the transaction, the broadcast segment is expected to contribute more than half of the company's total earnings before interest, taxes and other items. The digital and broadcast units combined are expected to contribute nearly two-thirds, Martore said, calling it "a significant shift in our business mix.”

In the combined company, Belo would contribute $680 million in revenue and $230 million in earnings before interest, taxes and other items. The merger will result in about $175 million in "synergies" in the next three years, largely from eliminating duplicate functions and other cost of running two publicly traded companies and more retransmission fees from cable operators made possible by enhanced negotiating powers.

Belo once owned newspapers, but separated its TV business in 2008 by spinning off the newspaper unit into a publicly traded company called A. H. Belo Corp.