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Upated from 4:31 p.m. ET to include Standard & Poor's ratings action




) -- Newspaper conglomerate


(GCI) - Get Gannett Co., Inc. Report

is buying

Belo Corp.


, a broadcast television-station operator, in a $1.5 billion deal that promises to almost double the company's TV revenue.

Gannett will acquire Belo for $13.75 per share in cash and assume $715 million in debt.

A clear financial rationale presented by Gannett and a strong investor reaction that put shares at five-year highs on Thursday indicates the deal may be a turning point for the 90-year old publisher.

Shares of McLean, Virginia-based Gannett soared 34% Thursday to close at $26.60. Belo shares closed up over 28% to $13.77, two cents above Gannett's offer price.

With Belo, Gannett will become the country's fourth-largest owner of affiliate-TV stations, reaching nearly one-third of U.S. households. Those businesses will help diversify Gannett from its lower-profit margin newspaper and online media businesses.

Overall, Gannett will increase its broadcast portfolio from 23 to 43 stations and will take over as the lead affiliate for

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stations, the fourth largest affiliate of ABC stations and it will add to its top standing among NBC affiliates.

Thursday's merger will generate about $175 million in annual synergy within three years of the deal's close, Gannett said in a statement. The merger is also expected to add to non-GAAP earnings per share by approximately $0.50 within the first 12 months and significantly increase Gannett's free cash flow.

While Gannett's acquisition values Belo at a multiple of 9.4 times earnings before interest, taxes, depreciation and amortization (EBITDA), the deal comes at just a 5.4x EBITDA multiple when assuming the projected synergy.

While Gannett continues to earn the bulk of its over $5 billion in annual revenue from newspaper and publishing businesses such as

USA Today

, the acquisition of Belo may more than double its broadcast business to over $2 billion in annual sales.

"We have been successfully transforming Gannett into a diversified multi-media company with broadcast, digital and publishing components across high-growth markets nationwide, and this is another important step in the process," Gracia Martore, Chief Executive Officer of Gannett, said in a statement.

"This is an outstanding and financially compelling transaction for our shareholders," Dunia A. Shive, Belo's CEO said in a statement.

In 2008, Dallas-based Belo split its broadcast media business from

A.H. Belo

(AHC) - Get A.H. Belo Corporation Class A Report

, which publishes newspapers such as the

Dallas Morning News


Providence Journal


Moody's forecast a "wave" of merger and acquisition activity among broadcast stations, in a a May 7 industry analysis, citing arbitrage opportunities for retransmission fees.

"Broadcast acquisitions give buyers immediate financial arbitrage with minimal risk, allowing them to raise the retransmission fees paid by the seller's existing cable, satellite and telecom video service providers," Carl Salas, a Moody's vice president, wrote in the report.

Salas highlighted

LIN Television


Nexstar Broadcasting

(NXST) - Get Nexstar Media Group, Inc. Class A Report


Tribune Company


as possible acquirers in the broadcast space and characterized Belo as a possible target.

Gannett's acquisition is expected to close by the end of 2013 and is subject antitrust approval, Federal Communications Commission approval and support by holders of two-thirds of the voting power of Belo shares.

Gannett expects to finance the merger through cash on hand, bank financing and new debt. The company said it will continue its share buyback program, but this time with a $300 million authorization to be used over the next two years. Gannett will also maintain its dividend, the company said.

Standard & Poors

affirmed Gannett's BB debt rating on Thursday and changed its outlook on the company's debt from 'stable' to 'positive.'

J.P. Morgan is providing financial advice and Nixon Peabody and Paul Hastings are serving as legal advisors to Gannett on the deal. RBC Capital Markets is providing financial advice and Wachtell Lipton Rosen & Katz is acting as legal advisor to Belo.

-- Written by Antoine Gara in New York

Follow @AntoineGara