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MUMBAI: Media General, Inc. has completed its previously
announced acquisition of four NBC stations.
The stations and their designated market areas (DMAs) are:
WNCN in Raleigh, WCMH in Columbus, WVTM in Birmingham and
WJAR in Providence.
All four stations are ranked among the top three in their
respective markets. The stations are located in large, growing
markets, and all four produce attractive operating and cash
flow margins.
"This acquisition is compelling from both an operational
and financial perspective. Investors can be highly confident
of our ability to execute as planned. We've successfully integrated
numerous acquisitions. We achieved or exceeded our projected
operating synergies, and we repaid debt as quickly as, or faster
than, projected," said Media General president and CEO
Marshall N. Morton.
"We are especially pleased to add Raleigh-Durham to our
Southeast footprint. In Birmingham, WVTM has a broader signal
than WIAT, the CBS station we currently own there, so we will
reach more households. The Columbus and Providence stations
are located in political battleground states, so they benefit
greatly from campaign spending, especially in Presidential election
years," he added.
The acquisition increases Media General's number of NBC stations
from five to nine and makes the company NBC's third largest
independent affiliate, further enhancing its relationship
with the network. The addition of these four stations will
improve the profit contribution mix of Media General's Publishing
and Broadcast segments, from approximately 60 per cent (publishing)
and 40 per cent (broadcast) to approximately 50/50.
"We have conservatively estimated operating synergies
of $3 million annually by 2008. The synergies will come from
enhanced revenues, which are expected to result from the implementation
of Media General's sales training and systems as well as its
inventory management and pricing processes. Cost reductions
will result from bringing the new stations into Media General's
Central Traffic Operation and from centralizing Master Control
for all of its NBC stations," said Morton.
The new NBC stations add approximately 450 employees. "We
are very impressed with the quality of the local management
and staff," he added.
The acquisition will immediately and significantly improve
the Broadcast Division's operating margin and drive meaningful
growth in its revenues and segment cash flow.
"Substantial free cash flow generated by our four new
stations will enable us to quickly reduce the debt we incur
to finance the acquisition," said Morton. He added that
at the end of 2006, the company expects its leverage multiple
to be four times and that it will be reduced to 2.5 times
by the end of 2008.
The cash transaction cost approximately $600 million. Future
cash tax savings will result from a step-up in basis that
is allowed for an asset purchase and the related amortisation
and depreciation deductions. The net transaction value, reduced
by the present value of the expected tax savings, is approximately
$450 million. Including the tax benefits and synergies, the
transaction represents a multiple of less than 10.0 times
2004-2005 average broadcast cash flow for the four stations.
The acquisition ultimately will be funded from three sources:
drawing on the company's existing $1 billion credit facility,
issuing new public or bank term debt that includes $100 million
for the acquisition and the refinancing of $200 million of
existing notes due September 2006, and at least $100 million
in net proceeds from the divestiture of assets previously
identified as non-core.
Media General is in the process of selling its CBS affiliate
in Wichita, including that station's three satellites, and
its CBS stations in Birmingham, Ala., Mason City, Iowa, and
Chattanooga, Tenn.
"There is substantial interest in the stations to be
sold, and we expect to complete the sale of all the stations
by the end of the year," said Morton.
As part of the acquisition of the NBC stations, Media General
was granted a six-month duopoly waiver in Birmingham by the
Federal Communications Commission, and the company has entered
into an agreement with the Department of Justice to divest
its CBS affiliate within six months.
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