The parent company of WTVG-TV, Channel 13, is set to acquire the owner of WTOL-TV, Channel 11, in a $3.65 billion deal, though the move likely will require WTOL to be sold in order to obtain regulatory approval.
The proposed deal, announced Monday, involves Atlanta-based Gray Television Inc. — parent firm of 101 television stations across 57 markets in 31 states, including WTVG in Toledo — acquiring Montgomery, Ala.,-based Raycom Media Inc., which operates two radio stations and 65 television stations in 44 markets across 20 states, including WTOL in Toledo.
Gray Television employs roughly 4,000 people and had $882 million in revenue in 2017, while the larger Raycom employs 8,300 and had revenue of $2.04 billion last year. The acquisition is to be completed in the fourth quarter of 2018, the companies said.
If it completes its purchase of Raycom, Gray Television would become the third-largest broadcast media company in the United States, with 142 stations and reaching nearly a quarter of U.S. television households. In a joint statement Monday, the companies added the transaction will “create the single largest owner of top-rated local television stations” in the country, serving 92 markets.
According to Gray, it is buying the employee-owned Raycom for $3.65 billion in total proceeds, including $2.85 billion in cash, $650 million in preferred stock, and 11.5 million shares of Gray stock, valued at $147.2 million as of Friday, prior to the deal’s announcement. In its announcement on Monday, Gray said Wells Fargo has provided $2.53 billion in debt financing.
The stock price of Gray rose 16 percent Monday, gaining $2.05 and closing at $14.85 a share on the New York Stock Exchange. Gray said the combined annual net revenue of both companies, when averaged over a two-year basis, would be about $2 billion. Raycom, a private firm which does not have public stock, would disappear after the purchase is completed, although some of its executives would work for Gray.
For now the acquisition awaits regulatory approval by the Federal Communications Commission. To receive the regulatory approval, Gray said in a U.S. Securities and Exchange Commission filing on Monday, it will divest TV stations — such as WTOL — in the nine overlapping markets where Gray and Raycom own competing interests.
The other markets are Knoxville, Tenn.; Waco, Texas; Tallahassee, Fla.; Augusta, Ga.; Odessa, Texas; Panama City, Fla.; Albany, N.Y., and Dothan, Ala.
In the Toledo market, Gray also owns WTVG-DT2, a digital substation of WTVG that carries CW network and local programming. WTOL has a shared services agreement with WUPW-TV, Channel 36, Toledo’s Fox affiliate, which is owned by American Spirit Media.
In 2017, the FCC adopted the Waiver of Duopolies of Top Four Stations in a Market, a process to allow a single broadcaster to own two TV stations in the same market, regardless of market size. In some cases, the stations can be network affiliates.
About a month ago, Gray petitioned for that waiver for the Sioux Falls, S.D., market, where it owns the ABC affiliate, KSFY-TV. As part of that petition, Gray submitted a study authored by Mark Fratrik, senior vice president and chief economist at BIA Advisory Services LLC, a media and communications research and consulting firm based in Chantilly, Va.
Mr. Fratrik, who has worked for Gray and Raycom, said he was surprised by Monday morning’s acquisition announcement, and did not know why Gray said it would divest itself of WTOL and other stations as part of the deal, rather than petition the FCC for the waiver.
“The commission hasn’t ruled on this, so maybe there’s some uncertainty,” he said. “I was not part of the conversation, so I don’t know, but maybe they want to be sure they get this completed and do not have any hang-ups.”
Mr. Fratrik added that he is supportive of the plan.
“These are two quality television groups, very committed in almost all of their markets in terms of having strong local news and programming,” he said. “And they are very successful groups also.”
In Toledo, news of the proposed deal shook through the newsrooms of both stations, surprising even the general managers at WTVG and WTOL.
“I had no idea until this morning, when the press release came out,” said Chris Fedele, WTVG’s vice president and general manager.
WTOL’s general manager, Brian Lorenzen, said he also was caught off guard.
“But it’s also the current climate: Get big or get out,” he said.
The Gray-Raycom deal is among several recent high-profile industry consolidation examples.
Last year, Nexstar Broadcasting acquired Media General for $4.6 billion. Sinclair Broadcast Group has a proposed $3.9 billion acquisition of Tribune Media Co. pending before the FCC.
The Gray-Raycom purchase will include all contracts with WTOL, such as agreements with anchors and other on-air staff, Mr. Lorenzen said.
What happens to the newsroom employees at WTOL, however, remains an unknown for now, said Dom Caristi, associate professor in the department of telecommunications at Ball State University in Indiana.
“For them, the question is who buys them. There are a number of companies out there likely to buy them and they would see virtually no difference, whereas there are those companies who might buy and make wholesale changes immediately,” he said. “If I was working there, I would be attentively watching who the station is sold to.”
Both the WTVG and the WTOL general managers said they expect no changes at their respective stations, including no layoffs.
“I don’t see anybody coming in and buying this station and saying I want to gut it,” Mr. Lorenzen said.
Mr. Fedele agreed.
“WTOL is a great TV station, which creates a great opportunity for someone to come in and buy it,” he said.
In spring, 2012, the FCC approved the shared services agreement between WTOL and WUPW, which allows for a combined newsroom product between the stations.
And now local newscasts account for a total of nine hours of total programming: 5.5 hours on WTOL, 3.5 hours on WUPW.
WUPW General Manger Patrick Donnelly said American Spirit Media’s ownership of the station is not changing.
“There is a shared services agreement with WTOL and Raycom, and whoever the next buyer is we will still be partnered through that shared services agreement,” Mr. Donnelly said.
Dennis Wharton, spokesman for the National Association of Broadcasters, voiced support for the acquisition.
“These two companies understand that localism is the lifeblood of television and that will effectively continue,” Mr. Wharton said. “I don’t think viewers will notice any difference in the quality” of those stations.
Late last year, Gray announced a public offering of 15 million shares and raised an estimated $217.5 million for, among other things, future acquisitions.
During a call with analysts Monday, a Gray representative said the company did not have a specific target in mind when it raised that equity, but felt some sort of an acquisition opportunity would come along.
Conversations for this acquisition began in late spring, and those involved rushed to close the deal, the representative said.
Raycom President and Chief Executive Officer Pat LaPlatney will become Gray's president and co-chief executive officer, along with Gray CEO Hilton Howell.
Raycom has also begun the process to sell or spin off its community-newspapers division, Community Newspaper Holdings Inc., which owns more than 100 titles in 23 states, and PureCars, a digital advertising platform for the automotive industry. Raycom and the newspaper group are financed by the Retirement Systems of Alabama, which manages state employee pension funds.
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