Belo might seem like an odd Bull of the Day bull of the day
being that it has agreed to be acquired by (merge with)Gannet
, Zacks Rank #3. Even so, I thought it was important to dig
a little deeper into this deal and determine ifBelo
(soon Gannet) can remain a strong force in our world's changing
media landscape and if Belo or GCI is worth your time.
I also consider it vital to clarify the deal and perhaps
explain why Belo is trading above its purchase price of $13.75 as
many retail investors may be piling into a stock that has a firm
ceiling that it would be able to climb above.
Belo Meet Gannet…
BELO Corporation was, essentially the largest pure-play
publicly-traded television station company in the nation. The
Company owns and operates twenty major television stations,
including ABC, CBS, NBC, FOX, CW and MyNetwork TV affiliates
reaching over14 percent of U.S. television households, and their
associated Web sites, in 15 highly-attractive markets across the
United States. Belo stations rank first or second in nearly
all of their local markets.
Gannett Co., Inc. operates 22 television stations in the
United States and is an international news and information
company that publishes daily including USA TODAY, the nation's
largest-selling daily newspaper. The company also owns in excess
of 400 non-daily publications in the USA and USA WEEKEND, a
weekly newspaper magazine. Gannett's subsidiary Newsquest is the
United Kingdom's second largest regional newspaper
Gannett will acquire all outstanding shares of Belo for $13.75
per share in cash, or approximately $1.5 billion, plus the
assumption of $715 million in existing debt for an enterprise
value of approximately $2.2 billion.
According to a recent press release by Gannett, the
combination of Belo and Gannet will create a broadcast "Super
Group," catapulting Gannett into the nation's fourth-largest
owner of major network affiliates reaching nearly a third of all
After the deal is complete, Gannett's broadcast portfolio will
almost double from 23 to 43 stations, including stations to be
serviced by Gannett through shared services or similar sharing
arrangements. Gannett's new broadcast segment will have greater
geographic and revenue diversity, with 21 stations in the top 25
markets and will become the #1 CBS affiliate group, the #4 ABC
affiliate group, and will expand its already #1 NBC affiliate
The transaction is expected to close by the end of 2013 and
will be subject to antitrust approval.
Is it Worth Your Investment?
Belo is already trading above the $13.75 cash acquisition price,
after sharply rising after the merger announcement last
month. If gannet was utilizing a stock for stock
acquisition method, then shares of BLC could continue to rise if
GCI stock increases as there would be a quantifiable connection
between the two, but with this being an all cash deal, that's not
Given the premium to offer, you should probably avoid the
stock (BLC) here as its upside will be limited unless of course
you're a merger arbitrage specialist. Gannett, on the other
hand, stands to gain potential appreciation from here.
While it's only a Zacks Rank #3 now, that could change as the
deal comes to an end.
Before the announcement, both companies were on the right
earnings trajectory as of late as estimates were on the rise, but
both were seeing year over year growth contraction. Both
companies were looking for moderate earnings growth in 2013, on a
slight decline in revenues.
There is no doubt that investors like the prospects of the
combined entity as both stocks rallied sharply on the news.
The company also believes that this is a win-win; they
anticipate that the transaction will generate approximately $175
million in annual run-rate synergies within three years after
closing. The transaction is additionally expected to
generate significant free cash flow and be accretive to non-GAAP
earnings per share by approximately $0.50 within the first 12
The transaction valuation implies a 9.4x average 2011/2012
EBITDA multiple prior to synergies, and a 5.4x multiple assuming
expected synergies (according to Belo).
Mark Fratrik, a vice president and chief economist for
BIA/Kelsey believes that this deal could propel Gannett into
becoming the number 3 local station owner in the United States,
by revenue. News Corporation ranks first with 27
stations and CBS Corporation, which owns 29 stations, is
currently number 2.
This deal goes beyond the local news. Gannett is
invested heavily in advertizing signage and perhaps most
importantly, internet properties (websites). The
acquisition of Belo will continue to add pricing and a
competitive edge to Gannett's franchise.
While you might not get your local newspaper delivered by the
paperboy anymore, trusted information and quality journalism will
never go the way of the Dodo.
If you are going to buy either company, look to GCI for the
longer term play despite the Zacks Rank of 3 as shares of Belo
shouldn't be going much higher from here. You might also
wait for a move back into the $24.00 range for GCI as shares are
slightly overbought here.
Jared A Levy is one of the most highly sought after traders in
the world and a former member of three major stock exchanges.
That is why you will frequently see him appear on Fox Business,
CNBC and Bloomberg providing his timely insights to other
investors. He has written and published two tomes,
"Your Options Handbook"
"The Bloomberg Visual Guide to Options"
. You can discover more of his insights and recommendations
through his two portfolio recommendation services:
- Learn to buy stocks likely to have robust earnings BEFORE they
- Technical Analysis + Zacks Rank. Best of both worlds approach
to find timely trades.
Follow Jared A Levy on twitter at @jaredalevy
Like Jared A Levy on
BELO CORP (BLC): Free Stock Analysis Report
DISCOVERY COM-A (DISCA): Free Stock Analysis
GANNETT INC (GCI): Free Stock Analysis Report
VALUEVISION CLA (VVTV): Free Stock Analysis
To read this article on Zacks.com click here.