The market seems to be extremely excited about Gannett Co., Inc. (NYSE:GCI), pushing its stock to a five-year high to around $26.60 per share after it announced that it would acquire Belo Corp (NYSE:BLC) for around $13.75 per share in cash in a total transaction worth $2.2 billion, including th assumption of $715 million in debt. Let’s take a closer look to see whether or not Gannett Co., Inc. (NYSE:GCI) is a good investment opportunity after Belo’s acquisition.
The snapshot of Gannett Co., Inc. (NYSE:GCI) and Belo Corp (NYSE:BLC)
Gannett Co., Inc. (NYSE:GCI), a media and marketing solutions company, owns several business segments with different characteristics and operating results. Nearly 70% of its total revenue was derived from the publishing segment while the broadcasting segment generated only $906 million, accounting for 17% of the total revenue. Interestingly, the broadcasting segment was the largest profit contributor, producing nearly $444 million in operating in 2012. The publishing segment ranked second with more than $368 million in profits.
While the publishing segment has experienced declining revenue and profits, the broadcasting segment’s top line and bottom line have been rising. Consequently, Gannett Co., Inc. (NYSE:GCI) could have delivered shareholders a lot of value by separating the broadcasting business away from the two.
Belo Corp (NYSE:BLC) is considered one of the biggest television companies in the U.S. with 20 television stations, reaching more than 14% of the U.S. TV households. Belo derived most of its revenue from retransmission and interactive. In 2012, Belo produced nearly $715 million in revenue and around $100 million in net earnings, or $0.95 per share. Its operation carries around $733 million in long-term debt. At $13.75 per share, Belo is valued at around 7 times its EV/EBITDA.
EV/EBITDA represents Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization. This ratio reflects the relationship between the market value, which has been adjusted with the company’s net debt, and its cash flow position.
Good strategic acquisition
The acquisition of Belo is a good strategic move by Gannett Co., Inc. (NYSE:GCI) to expand its footprint in the broadcasting business. By having Belo in-house, Gannett nearly doubles its broadcast assets with more scale and diversity, making it the fourth biggest owner of major network affiliates, only after CBS, FOX, and Sinclair Broadcast Group, Inc. (NASDAQ:SBGI). While Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) reaches around 34% of the total U.S. television households, the combined company has a coverage of around 30%. A $13.75 price tag represents a 28% premium to Belo’s closing price on Wednesday last week.