The stations serve what Gannet CEO Gracia Martore called in a statement "some of the fastest growing markets in the nation" and add to a TV group that has grown substantially with the $2.2 billion acquisition of Belo Corp. last year.
But don't expect the McLean, Va., owner of USA Today to follow the lead of media conglomerates Tribune and Time Warner (TWX) and spin off its publishing arm.
"I don't really get any sense that they are heading down the road of completely separate business models and a lack of interaction," said Barrington Research analyst Jim Goss.Gannett's newspapers are in mid-sized markets such as Palm Springs, Calif., St. Cloud, Minn. and Westchester County, N.Y. Its television stations are generally in larger cities including Atlanta, Houston and Seattle. Still, the papers and TV stations can collaborate on promotions or sports coverage, Goss suggested. Gannett has given print reporters cameras to shoot pictures and video, and sought to develop its digital properties. Video from the TV stations can also play into the online properties. In an earnings call earlier this year, Gannett CEO Martore suggested that integrating Belo was a higher priority than a breakup. Tribune has said that it expects to break off its publishing arm in mid-year. Like Gannett, Tribune has been bulking up in broadcast with the $2.725 billion purchase of Local TV LLC from Oak Hill Partners LP last year. Time Warner, meanwhile, has said it will spin out Time Inc. to shareholders on June 6. Gannett is buying major network affiliates in the Texas towns of Abilene, Beaumont, Corpus Christi, San Angelo, Tyler and Waco from London Broadcasting -- the stations reported revenue of approximately $50 million in 2014. London Broadcasting Chief Operating Officer Phil Hurley will run the stations for Gannett. SunTx Capital Partners LP-backed London Broadcast will continue to own stations in its home market of Dallas and in Tyler. Taxes are part of Gannett's motivation. The company sold KMOV-TV in St. Louis and related assets to Meredith Corp. for $407 million to win Department of Justice approval for the Belo purchase. Gannett can reduce its tax bill from the divestiture by reinvesting the proceeds in like assets. Counting the tax savings and other financial benefits from combining the stations with a larger group, Gannett estimates that the London purchase comes to 6.7 times average Ebitda for 2014 and 2015. Station owners often blend Ebitda for odd and even years, to account for spikes in advertising from the Olympics and elections. Gannett's newspapers generate more revenue than its TV stations, but the balance is shifting. Publishing sales totaled $842 million in the first quarter of 2014, a decline of 3.3%. Broadcast revenues jumped 99.5% to $382 million, largely because of the Belo purchase. Broadcast is more profitable, however, generating nearly $155 million in operating income versus $43 million from publishing. Though print and broadcast have different trends in growth and profitability, Gannett seems likely to keep them together for the time being. "They really view the local touchpoints as something that can really enhance some of the digital offerings and some of the TV offerings they have," Goss said. Gannett expects to close the purchase of London Broadcasting stations in the summer. Phyllis Riggins led a team from Stephens Inc. advising the buyer.
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