EXECUTIVE SUMMARY
- TEGNA closes its M&A saga with sale to Standard General and Apollo. We finally got closure today on TEGNA’s announcement that it agreed to sell the company to Standard General (and Apollo via a non-voting stake) for $8.6 billion, or $24/share in all cash. This values TGNA at 9x 2020/2021 L8Q EBITDA and 8x 2021/2022 based on our estimates. Although the valuation is below recent comps (e.g., MDP sold to GTN at ~10x), it would represent the largest broadcast TV transaction to date.
- What does this say about the broadcast TV outlook? While we are surprised TGNA felt this was the best pathway forward, we believe the board elected to take the cash at a time when investors continue to be skeptical about local TV’s competitive position in media and the equity market has been volatile. This suggests a lack of confidence, in our view, on public market multiple expansion for broadcast TV and deregulation for the industry. TGNA’s likely pathway toward creating further value as an independent would have relied upon relaxation on local duopoly rules and/or a higher national ownership cap.
- We believe CoC gets triggered on TGNA issued debt and Belo-issued bonds will likely get security. Although the press release was light on detail, there are two disclosures that suggest to us that a change of control event has taken place for TEGNA-issued bonds: 1) the transaction value is all-cash, suggesting TEGNA shares will be fully redeemed and 2) Standard General will hold “substantially all of the voting, common equity” in the entity that is acquiring TEGNA. For the Belo-issued bonds, we view a high probability that the bonds will get security, especially given the small notional amount (only 5% of total transaction value).
- We put 70% odds on regulatory approval given Apollo involvement. Based on what was disclosed in the press release (very little), we don’t see anything that explicitly suggests a problem with regulatory approval. However, the devil may be in the details, and any substantial Apollo involvement (even if non-voting) may draw regulatory scrutiny, especially if it appears the structure is solely designed to skirt FCC ownership limits or anti-trust concerns in duopoly markets. TEGNA’s inclusion of “ticking fees” on a lengthy merger review suggests it has some concern about the regulatory outcome. As such, we put a 70% chance of approval, but will reserve full judgment until we get more transparency.
- TGNA bonds likely to hold firm during regulatory review. We see TGNA-issued bonds holding firm at just under the 101 change of control level until we get more transparency on the change of control outcome and the regulatory leaning on approval. Bonds now trade at the tight end of the broadcast TV peer group, with 2028s and 2029s in the mid-4% and 5% area, respectively, compared to NXST (mid-5%), UVN 1L (mid-5%) and GTN (high-5%).
