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Gray Television Withdraw Bid For Tegna

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On March 17, 2020, Reuters reported that Atlanta-based operator of television stations, Gray Television (NYSE: GTN, $10.15, Market Cap: $1.01 billion) has withdrawn its offer to acquire larger rival TEGNA (NYSE: TGNA, $13.73, Market Cap: $2.99 billion) due to the impact of coronavirus outbreak on US regional TV station operators. Later on the same day, Phoenix based private equity firm, Najafi Companies and arguably the world’s largest faith-based religious broadcaster, Trinity Broadcasting Network made a joint bid for TGNA. The offer of $20 per share in cash implies equity value of ~$4.4 billion for TGNA. Despite news of the fresh bid for TGNA, the company’s shares sunk ~9% to $13.73, amidst broad-based selling in the market given coronavirus fears.

Najafi and Trinity Broadcasting plan to create a new entity for the proposed acquisition and keep TGNA private post the deal to protect the unit from the pressure of achieving short-term shareholder objectives. Earlier on March 6, 2020, Reuters had reported that GTN had offered to acquire TGNA for $20 per share, implying total deal value of $8.5 billion, including debt. The reported withdrawal of GTN’s offer means that now it is a three-horse race for TGNA, with private equity firm Apollo Global Management Inc and media baron Byron Allen having already submitted all-cash offers of $20 per share. According to reports, the due diligence for some of the offers is already underway. However, with all the three offers stuck at the same price, the street reckons that the prospective winner may have to be prepared to divest some TV stations.

Deal Rationale

Rationale Currently, the regional TV sector is witnessing positive advertising momentum on the back of the US presidential election scheduled for November 2020. However, income from TV advertisements is declining as media consumption is shifting to internet and online streaming. Over the years, TV station ownership has been consolidating in a bid to enhance scale and improve deal terms with advertisers, even as they have struggled to arrest the decline in traditional viewership. In 2019, Nexstar Media Group purchased Tribune Media TV stations for $7.2 billion and Sinclair Broadcast Group acquired Walt Disney Co’s 21 regional sports network for $10.6 billion, including debt.

TGNA has been under pressure from Standard General, an activist investor and third largest stakeholder (~9.7% stake in TGNA) to take steps to enhance shareholders value. In February 2020, TGNA had rejected all four director nominees of Standard General. Additionally, investment firms such as HG Vora Capital Management and Donerail Group have also reportedly been pushing for changes in the company. TGNA has been an acquisition target for multiple suitors recently, reflecting its scale and reach. The company has 62 TV stations in 51 US markets and reaches ~38% of TV households in the US, with a presence in larger markets such as Seattle, Dallas, and Washington D.C. Trinity Broadcasting reaches more than 175 nations with its inspirational programming in 14 languages and on 32 global networks. Najafi has experience in the media and technology sectors and invests for the long-term to create value through growth and superior performance. Najafi and Trinity expect compelling synergies from the deal, with TGNA having multiple strategic opportunities to enhance its positioning and overall value to its audience and advertisers under the combined private ownership structure.

The other two players in the fray too have potentially major benefits from acquiring TGNA. Apollo has been aggressively buying local stations to build one of the largest TV groups in the US. In 2019, Apollo purchased a majority stake in Cox Media Group for ~$3 billion, which included 13 TV stations amongst various other assets. The addition of TGNA would further enhance Apollo’s scale. In the quest to become amongst the biggest broadcasters in the US, Allen Media has reportedly made a $20 per share offer to purchase TGNA. Byron Allen-controlled Allen Media Group owns 15 television stations in 11 markets, primarily gaining scale through the purchase of 11 stations of USA Television for $305 million in February 2020. Byron Allen plans to invest up to $10 billion to create a national level TV group. As the ambitions of TV station owners to gain national scale rise rapidly, TGNA offers a compelling acquisition option.

GTN, which had offered to buy TGNA to increase its reach in the US market, reportedly withdrew its offer as shares plummeted in a volatile market shaken by the coronavirus pandemic. GTN’s shares recouped some losses after reports of offer withdrawal surfaced.

Company Description

TEGNA

TEGNA Inc. is an innovative digital media and marketing services Company that conducts impactful investigations and delivers innovative marketing solutions. With 62 television stations in 51 markets, TEGNA is the largest owner of top 4 affiliates in the top 25 markets among independent station groups, reaching ~ 39% of all television households nationwide. TEGNA also owns leading multicast networks- Justice Network and Quest. TEGNA Marketing Solutions (TMS) offers innovative solutions to help businesses reach consumers across television, email, social and over the-top (OTT) platforms, including Premion, TEGNA’s OTT advertising service.

The Najafi Companies

The Najafi Companies, based in Phoenix with offices in Los Angeles and New York, is an entrepreneurially driven private investment firm founded by Jahm Najafi in 2002. The firm comprises a team of concentrators who make highly selective investments across industries, with deep experience in media, technology, consumer, sports, retail and other sectors. The Najafi Companies funds the investments with internally generated capital, and invests in areas that are undergoing rapid transformation.

Trinity Broadcasting Network

Trinity Broadcasting Network is the world’s largest and most watched faith-and family broadcaster, reaching over 175 nations across the globe with inspirational and entertaining programming 24 hours a day in 14 languages and on 32 global networks. Trinity is the world’s most influential non-profit religious broadcaster.

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