Nexstar Media Group Inc. announced Monday morning that it has agreed to buy Tribune Media Co. for $4.1 billion, creating the largest owner of local-TV stations in the U.S.
Nexstar outbid private equity firm Apollo Global Management LLC with an all-cash offer that values Tribune at about $46.50 a share, a 16 percent premium to where Tribune shares closed Friday.
The deal involves two companies that own TV stations in Indianapolis. Nexstar is the owner of WISH-TV Channel 8, and Tribune Media owns WTTV-TV Channel 4 and WXIN-TV Channel 59. It appears likely that Nexstar will have to sell off one of the Indianapolis stations to comply with Federal Communications Commission rules, which limit a company's ownership of stations in a single market to no more than two.
In its press release announcing the Tribune deal, Nexstar said it "intends to divest certain television stations necessary to comply with regulatory ownership limits," but it did not identify markets or specific stations.
On a call with analysts Monday, Nexstar said it would divest assets in 13 markets of 15 markets where there is overlap to win approval for the Tribune deal. Executives said the divestitures and the acquisition of Tribune would leave the combined company “just below” the federal cap of owning stations that reach 39 percent of U.S. households, but they would be open to more deals if the cap ever rises.
The deal would create a new king of local TV, unseating Sinclair Broadcast Group Inc. Four months ago, Sinclair was forced to abandon its own takeover attempt for Tribune after the $3.9 billion transaction drew the ire of regulators. Nexstar had been interested in Tribune last year before Sinclair had agreed to buy it.
Tribune is now set to fetch a higher price from Nexstar.
Nexstar CEO Perry Sook said Monday he thinks two of the 15 overlapping markets clearly are not problems from a regulatory compliance issue. He said Nexstar plans divestitures in the other 13 markets.
He did not identify the two markets that were not problems.
“I have already had inbounds from four companies since our 7 a.m. announcement regarding divestitures," he said. "So we think it will be a robust process.”
Sook said he has not had conversations with Fox about station purchases. Fox had a previous deal to buy seven stations from Sinclair before the Sinclair-Tribune deal was called off.
“We’ll see when we put the divestitures out to the marketplace what if anything they are interested in,” he said of Fox.
Bulking up will give Nexstar more leverage as it negotiates retransmission fees from pay-TV providers. Broadcasting companies also are pairing up in the hopes that their size will help ward off a threat from Netflix Inc. and other streaming services.
Search for scale
“One of the responses we’ve seen across the media landscape has been consolidation,” said Paul Sweeney, an analyst at Bloomberg Intelligence. “Let’s get bigger. Let’s get scale. Let’s respond to some of these technology media companies.”
This marks the second major deal among broadcast-station owners in 2018. In June, Gray Television Inc. agreed to buy Raycom Media Inc. for $3.65 billion.
Nexstar, based in Irving, Texas, has about 175 TV stations, including NBC, CBS, ABC and Fox affiliates, which reach roughly 40 percent of U.S. households. Chicago-based Tribune owns or operates more than 40 stations, as well as the national network WGN America.
Sinclair’s Tribune takeover began to crumble over the summer, when U.S. Federal Communications Commission Chairman Ajit Pai questioned the legality of a plan to sell TV stations in order to meet ownership limits. “I have serious concerns about the Sinclair/Tribune transaction,” Pai said at the time, sending shares of both companies plunging.
The commission voted unanimously to send the issue to an administrative hearing judge, something that can delay or even kill a transaction. Tribune ultimately backed out of the deal.
Sinclair, which has 191 stations in its lineup, is known as a politically conservative broadcaster that’s friendly to the Trump administration. As the Tribune deal fell apart, the president slammed the FCC’s role in scuttling the merger, saying it was “sad and unfair.”
“This would have been a great and much needed Conservative voice for and of the People,” Trump said in July.
In acquiring Tribune, Nexstar may be able to sidestep the regulatory problems that Sinclair faced, according to Bloomberg Intelligence’s Sweeney.
“Nexstar has a very longstanding, positive relationship with the FCC,” he said.