Gannett Co., Inc. (GCI), Sinclair Broadcast Group, Inc. (SBGI): Benefiting From TV Stations’ Acquisition Spree

Sinclair acquired 8 stations from Allbritton family

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) owns around 134 TV stations in 69 markets and four radio stations with coverage of 34% of the total U.S. TV households. Interestingly, only around 9% of its total revenue comes from retransmission fees, and as much as 85% of its total revenue is derived from ads. In the near future, Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) would like to decrease its ad revenue percentage share to 77% and increase the retransmission revenue percentage share to 16%.

The company reported that it is the biggest TV broadcasting consolidator with nearly $3 billion in assets purchased. The consolidation will help shield the company from local economic downturns. Moreover, the network diversity will provide the company with programming stability. Including the synergies of $21.5 million, a $985 million deal represents a 2011-2012 average EBITDA multiple of 8.7, lower than Sinclair Broadcast Group, Inc. (NASDAQ:SBGI)’s current trailing EBITDA multiple at 10.4. Sinclair expects that these TV stations will generate around $35 – $50 million in free cash flow per year. At the free cash flow multiple of 10, the equity value per share would be around $3.50 to $5. Sinclair expects to finance the deal via bank loan.

My Foolish take

Among the three companies, Gannett seems to be the cheapest valued with only 6.64 times its trailing EBITDA, with the juicy dividend yield at 3%. Both Tribune and Sinclair have much higher EBITDA multiples at 10 and 10.37, respectively. While Sinclair offers a lower dividend yield at 2.10%, Tribune has not offerred any dividends yet.

All three companies will be benefit from TV station consolidation with more negotiating power with content owners and pay-TV distributors. Among the three, I like Gannett the most with its lowest valuation and the juiciest dividend yield. I personally think that Gannett, with the Belo acquisition, will deliver decent return for 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.

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