Tribune buys 19 TV stations to broaden its reach

• Deal creates one of nation%27s largest TV station owners%2C based in Chicago
• Tribune Co. will have 42 stations in 16 markets%2C including New York%2C Los Angeles%2C Miami and Seattle
• Looking to boost profile%2C revenue in station business

Consolidation in the TV station business is picking up speed.

Tribune Co. said Monday that it has agreed to buy 19 broadcast TV stations from Local TV Holdings for $2.7 billion in cash, a deal that boosts Tribune's presence in key markets and makes it one of the largest TV station owners in the U.S.

After the deal closes, Tribune will have 42 stations in 16 markets, including New York, Los Angeles, Miami and Seattle. In a statement, Tribune said that "most of Local TV's stations are ranked No. 1 or No. 2 in revenue share" in their markets, and the transaction will generate "significant free cash flow."

Local TV is principally owned by equity firm Oak Hill Capital Partners.

Tribune's further push into TV has been expected by analysts since it emerged from bankruptcy in December. Having undergone four years of Chapter 11 reorganization, the company has been looking to sell its newspaper assets, including the Chicago Tribune and Los Angeles Times, and focus on more-profitable ventures.

The deal underscores the strength in TV ad dollars and the need for station owners to bulk up their groups to gain leverage in negotiations with pay-TV providers for retransmission fees and to deal with the networks for content.

"Smaller players feel like they're losing their way with pay-TV providers and broadcast networks," says Craig Huber, analyst at Huber Research Partners. "They feel like they're at a disadvantage here unless they size up."

The deal comes less than a month after rival Gannett signed a deal to nearly double its TV business from 23 to 43 stations. On June 13, the McLean, Va.-based media company, which publishes USA TODAY, agreed to buy Belo's TV stations for $1.5 billion in cash and assumption of $715 million in debt.

On June 4, Sinclair Broadcast Group agreed to buy four TV stations owned by Titan Television Broadcast Group for $115.4 million, the latest in a string of acquisitions by Sinclair in the last two years to grow its portfolio. When that deal closes, Sinclair will own 140 stations in 72 markets.

And two days later, Richmond, Va.-based Media General and New Young Broadcasting Holding announced that they've agreed to merger. Their 30 stations — Media General's 18 and Young's 12 stations — will operate in 27 markets.

According to data compiled by Bloomberg, TV and broadcast deals in the U.S. totaled $3.2 billion in the second quarter through June 19, almost double any quarter since 2007.

The deals partly stem from pent-up demand, says Ed Atorino, media analyst at Benchmark Co. "If you go back to before the 2008 to 2009 crash, many bought TV stations and got stuck," he says. "Values are now way up. Sellers who were dying to sell found a ready market. And here's a big enchilada, Tribune, looking at the market and saying it's time to make a move. Local TV is cashing out."

TV station owners' attempts to boost their negotiating leverage also are unfolding at a time when pay-TV executives are looking to shake up their market.

Drawn to the possibility of combining pay-TV service with Internet subscriptions to keep viewers under one tent, cable TV pioneer John Malone is said to be interested in a deal for Time Warner Cable, according to a report in The New York Times Monday.

Citing unnamed sources, the report said Malone, chairman of Liberty Media, would have Charter Communications acquire TWC. Liberty owns 27% of Charter.

If Malone pulls off the deal, the Times report says, he would use the combined company to further consolidation in the cable and satellite TV business.

FOCUS ON TV

In acquiring Local TV's stations, Tribune will have about $3.5 billion in consolidated revenue and $1.1 billion in earnings before interest, taxes and other items, the company said. It also estimates more than $100 million in "synergies" — largely derived from increased revenue — within five years, it said. The deal, financed by debt, is expected to close by the end of 2013.

"Since joining Tribune in early 2013, we have been setting the strategic foundation to transform Tribune and help chart the path forward — building our multimedia capabilities and asset portfolio to become the country's leading independent content creator and distributor," said Peter Liguori, Tribune CEO. "This is a transformational acquisition for Tribune."

Tribune, which also owns 10 daily newspapers, plans to distribute more video and digital content through its TV and digital properties. And the acquisition gives the company more options and markets to offer advertisers.

Having stations in key markets in political swing states also could help Tribune generate more ad revenue during election seasons, Huber says. "Political advertising in 2012 was so much stronger than anyone expected. Broadcasters are hoping that repeats in 2014, 2016 and beyond."

Tribune's new broadcast portfolio will include 14 CW affiliates, 14 Fox affiliates, five CBS affiliates, three ABC affiliates, two NBC affiliates and four independents. It will own 14 stations in the country's top 20 markets and become the largest Fox affiliate group, the company said.

While federal rules prohibit a TV station group from reaching more than 39% of all U.S. TV households, Tribune's market reach following the new deal will be below 30%, the company said.

Tribune executives also will look to inject more resources into WGN America, its nationally distributed cable network based on WGN-TV in Chicago. WGN reaches about 75 million cable households, and investors and analysts have implored the company to invest more in the network for compelling and original programming.

"WGN is certainly on investors' mind," Huber says. "Tribune wants to increase distribution to get it closer to 100 million (homes) and improve programming so they can get better ratings and more advertising revenue."