Cheering Up the Recent Gannett Co., Inc. (GCI) Acquisition

Gannett expects to have around $175 million in annual run-rate synergies spread over three years after the deal closed. The acquisition would be accretive to its EPS by around $0.50 in the first year. At $2.2 billion enterprise value, the EV/EBITDA stays at 9.4, excluding any synergies. However, the pro-forma EV/EBITDA was only 5.4, taking into account about the three-year run-rate synergies.

After Belo’s acquisition, the broadcasting segment will be the largest revenue contributor, accounting for 52% of the total combined company’s revenue, with an EBITDA margin of 24.3%. Going forward, Gannett said that it might spend around $300 million to buy back its shares in the next two years. It also maintains its dividend payment.

Is the offer cheap?

Gannett seems to be a good deal if it could acquire Belo as it is trading at a discount to Sinclair. Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is trading at around $27.10 per share with a total market cap of $2.2 billion. The market values Sinclair at 9.6 times its EV/EBITDA, a much higher valuation than the Belo’s EV multiple of 7. Sinclair currently has around 134 TV stations in 69 markets and four radio stations with 37% of net broadcast revenue coming from FOX.

Currently, around 85% of the total revenue is derived from ads while gross retransmission revenue accounted for 9% of the total revenue in 2012. In the future, Sinclair would like to increase the percentage share of retransmission revenue. In 2016, it is expected that the gross retransmission revenue would account for 16% of the total revenue while the ad revenue share would be reduced to 77%.

Among the three companies, Gannett offers investors the juiciest dividend yield at 4%. Belo ranks second with a 3% dividend yield while Sinclair pays its shareholders dividend with a yield of 2.5%.

My Foolish take

With the acquisition, Gannett could be among the top four TV television companies in the U.S., expanding its business in the high margin broadcasting segment. With the highest dividend yield and low pro-forma valuation (including run-rate synergies), Gannett could deliver a nice return to its shareholders in the long run.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Cheering Up the Recent Gannett Acquisition originally appeared on Fool.com is written by Anh HOANG.

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