Gray Television (GTN) is trade 12% higher Tuesday after it enlarged the report commercial operation by acquiring a cube of Schurz Communications for $442.5 million to enhance the participation in small to midsize markets in the U.S.
In the deal, Gray, formed in Atlanta, will buy all of the air wave and air wave stations owned by Schurz, a family-controlled media association formed in South Bend, Ind. Schurz will go on to concentration on the edition and wire businesses.
While TV promotion is flighty and cyclical, analysts are bullish on the understanding since the attention consolidation, now ongoing for about 3 years, gives larger come to terms precedence to larger TV hire operators when they come to terms with wire companies for placement fees and digital streaming rights.
Shares of Gray rose $1.38 to $13.12 Tuesday afternoon.
After the understanding is completed, Gray will own 49 TV stations in 28 states, creation it one of the largest TV hire operators in the U.S. along with Sinclair Broadcasting Group and Tegna. The understanding is approaching to be finished by the finish of the year or early 2016.
The merger additionally will increase the total series of locally top-ranked stations owned by Gray to 39, Gray says.
“Through the Schurz transaction, we will significantly enhance the peculiarity of the portfolio of heading air wave stations,” pronounced Gray CEO Hilton Howell in a statement.
An present burst in Gray’s money upsurge following the understanding execution additionally has not left unnoticed. On a “pro forma” basement — mixing Schurz stations’ monetary opening with Gray’s operations and alternative tentative acquisitions by Gray — Gray’s 2014 promote money upsurge would have increasing to about $348 million, Gray says.
In Jun 2014, Gray finished the merger of twelve TV stations and programming of 3 additional stations from Hoak Media and Parker Broadcasting. In September, Gray pronounced it concluded to pay $100 million in money to buy KCRG-TV, the ABC associate for Cedar Rapids, Iowa, from the Gazette Co.
“Expected clever giveaway money flow” from all the new exchange would assistance Gray reduce the debt, it says.
Pro forma 2014 income would have been about $774 million. Pro forma domestic ad sales in 2014 would have been about $120 million.
The TV attention is underneath attack from cord-cutting, wherein viewers embankment wire and heavenly body TV services for streaming options, such as Netflix. While internal stations owners promote over the air and their calm is accessible for giveaway for receiver owners, their distribution strategy additionally relies heavily on the fees — called retransmission agree fees — paid by pay-TV providers for the rights to embody their stations in pay-TV lineups. And larger TV companies stand to direct aloft fees from wire and heavenly body TV providers.
Even as the gait of cord-cutting picks up, retransmission agree fees continue to skyrocket. According to SNL Kagan, broadcasters will take in $9.3 billion for promote channels by 2020, roughly stand in the $4.9 billion they were projected to have perceived final year.
But copiousness of hurdles sojourn for internal TV station operators. There have been countless hurdles by pay-TV companies to remodel retrans fees, together with a direct to go on to air programming during stipulate negotiations. The fees paid by internal TV to the big networks (CBS, FOX, ABC and NBC) for the rights to network calm — called “reverse retransmission consent” — have been additionally rising. Reverse retrans fees are projected to reach $1.53 billion this year and rise to $3.22 billion in 2020, SNL Kagan says.
“Size and scale make a difference some-more than ever before” in a fast consolidating industry, Todd Schurz, CEO of Schurz, says.
Follow Roger Yu on Twitter: @RogerYu_.