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TV Consolidation Will Only Accelerate, Moody's Says

NEW YORK (TheStreet) -- Gannett (GCI), the newspaper publisher shifting its emphasis to television, appears poised to eventually acquire Belo Corp (BLC), the Dallas-based TV-station owner in a deal worth $2.2 billion, even if a few more pennies per share are needed to placate some stockholders.

But looking beyond this deal, local TV-station ownership is headed for further consolidation, says Moody's Investors Service media company analyst Carl Salas. Large and medium-sized television-owner groups, which went on an aggressive buying spree this past summer, are likely to be acquired by even larger entities as the industry's holdings become further concentrated.

That means that TV-station owners such as LIN Media (TVL), Nexstar Broadcasting Group (NXST) and Media General (MEG) could be acquired by media corporations such as Tribune (TRBAA), Gannett (GCI) and Sinclair Broadcast Group (SBGI), Salas said.

Nexstar made itself even more attractive to a larger buyer on Monday announcing the acquisition of five TV stations including two ABC and one CBS (CBS) affiliate in the politically-active state of Iowa at a cost of $103.25 million.

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"We've gotten to the point where the M&A activity has really accelerated," Salas said in a phone interview. "As we get to the next stage of consolidation, some of the companies we've looked at as buyers in the past, will now be acquired."

Belo was jumping 1% to $14.04 on Tuesday, trading at a 29-cent premium to Gannett's offer price of $13.75, an indication that pressure may be growing on the publisher of USAToday to increase its offer. Belo shares have reached as high as $14.51 since the deal was announced on June 13.

Belo didn't hold an auction for the company, a debatable decision acknowledged by CEO Dunia Shive on a June investor conference call. The move invited criticism that the TV-station owner could have fetched a higher sale price by publicizing its availability. Nonetheless, Belo's board may not need Gannett to raise its bid now that Institutional Shareholder Services and Glass Lewis & Co., independent proxy groups, gave the deal their blessing.

Belo shareholders, heartened by a 30% gain in the shares since the Gannett offer was made public, may be loathe to risk trying to extract more from the deal. If either company opts out, they would have to endure a 3.5% break-up fee.

Belo already has 42.5% of the company's voting power committed to backing the sale, but two-thirds of all shares outstanding must vote in favor of the deal as those votes not cast will count as being opposed. A vote is scheduled for Sept. 25. <story_page_break>

The past five months have been a busy time for the industry. In June, Media General (MEG) merged with New Young Broadcasting Holding Co, in an $860 million deal backed by Warren Buffett and Mario Gabelli, creating a company owning 30-network affiliated stations reaching about 16.5 million U.S. TV households.

In July, Tribune (TRBAA), the Chicago-based media company that came out of a painful bankruptcy at the end of 2012, announced plans to acquire privately held Local TV Holdings for $2.725 billion in cash, creating a company owning 42 local TV stations covering 39% of U.S. TV households.

And in late-July, Sinclair Broadcast Group (SBGI), the largest single U.S. owner of TV stations, paid $985 for seven ABC-affiliated stations owned by the Allbritton family along with a 24-hour Washington D.C.-based cable channel. Sinclair owns 149 network-affiliated TV stations for a coverage of 38%, according to its Web site.

The engine behind all this consolidation is the increasingly strong hand that television station owners wield in negotiations with cable-TV and satellite operators. The recent victory of CBS over Time Warner Cable (TWC - Get Report) only served to highlight where the power lies as cable operators, also including DirecTV (DTV)and Comcast (CMCCA), bargain from increasingly weaker positions due to declining numbers of pay-TV subscribers.

For station owners, acquisitions provide the scale to better manage expenses and, more importantly, afford them greater leverage in negotiating re-transmission fees from pay-TV operators and syndicated programming from networks, Salas said. Tribune and Gannett, historically newspaper publishers, have made clear their intention to grow the television side of their companies even as faster growth might be found in cable-TV networks.

"The local TV business is a mature industry, so to continue growing, scale is essential," he said. "And with each of these larger companies looking to get bigger, they're looking to make further acquisitions and increase thier scale even more."

Consolidation, therefore, is anything but complete. Salas says investors can expect more deals in the not-too-distant future.

Gannett was jumping 1.1% to $25.79, extending its 2013 advance to 43%, well above the benchmark S&P 500 which has gained 19% this year.

Written by Leon Lazaroff in New York

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>News stories and columns by Leon Lazaroff.

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