GTN is still relatively small ($1.5B mkt cap) and some investors were probably expecting the company to
be a seller not a buyer. In addition, the company’s pro forma analysis was based off of historical ‘16/’17
cycle results. 2016 was an unusual election year from an ad spend perspective. Something tells me
media spend will be up, not down in 2020.
Retrans revs are around $600M for the combined company and the $80M synergy target includes a
contractual $15M step up to get Raycom onto GTN’s retrains rates. The larger company should be
better able to push retrains and manage reverse retrans exposure. The combined company should be
well position as the next cycle of retrans step–ups kick in in the ‘19/’20 cycle.
I expect retrains ramp will more than offset flat/modestly declining ad revs over the next few cycles.
GTN and Raycom are significantly exposed to the local ad market. This exposure bears watching over
time as a significant risk to my favorable view of GTN (and NXST).
OTT is another overhang to all traditional media companies. Given the strength of GTN’s stations in
their local markets, they have signed distribution agreements with almost all of the meaningful OTT
players. (this is true for NXST as well). Management teams indicate they are happy with the margins on
the OOT revenue.
Capex should be around $80M for the combined company and free cash flow should delever
debt/ebitda to the mid 4s by 2019 and 3+ by 2020.
Note Raycom also has some other assets which could generate additional growth asset value over time.
Raycom also still has a meaningful spectrum position. I am trying to track down specific numbers on this
asset.
Given the Sinclair fiasco I’ve included management’s comments on the GTN-Raycom deal closing risk
below. In summary, I think it is highly likely that this deal closes.
• This transaction does not seek any waivers of SEC ownership rules, period. We have overlaps in
9 markets. While we believe we could obtain approvals from the government to keep some of
those and create new duopolies, we have decided and decided very early on with Raycom that
we would instead move immediately to divest an overlap station in each overlap market. Wells
Fargo is beginning -- as Hilton said on his remarks, they're beginning already this morning to
reach out to potential buyers. We will have an expedited process. You may recall with Schurz,
we started and finished the divesture process in 30 days. We are targeting a pretty aggressive
period here. We expect to be at the government in middle of August with divestures lined up,
and again, we are not seeking any waivers. On the national ownership cap, we mentioned that
the company combined today would reach 24% of the U.S. That is without the UHF discount,
with the discount we will be even lower. So let's assume there's no UHF discount, this
transaction complies with every version of the SEC's cap on a national audience reach going
back to 1985. Back then the cap was 25%. There were 3 television network in an analog world
when Facebook's Mark Zuckerberg celebrated his first birthday. So we think this is the cleanest
possible transaction that we could present to the SEC and DOJ, and we're doing that on purpose.
GTN is still relatively small ($1.5B mkt cap) and some investors were probably expecting the company to
