Synergies and Arbitrage
Assuming that the terms of the deal remain constant, a Gannett -Belo merger offers plenty of potential synergies. The deal will double Gannet’s TV station count and turn the company into the fourth-largest American broadcaster. In addition, the firm’s management team estimates that Belo Corp. (NYSE:BLC) will add at least $75 million in initial annual cost savings and synergies. In the out years, this figure could rise to $175 million or more. Moreover, Gannett’s diversification drive is sure to please traders and fund managers who have soured on the publishing industry.
Investors should not discount the possibility of a restored arbitrage premium as well. If Gannett Co., Inc. (NYSE:GCI) issues a higher offer or finds itself in the midst of a bidding war, a temporary drop in Belo Corp. (NYSE:BLC)’s stock price could provide a suitable entry point for keen-eyed investors. Since this deal will not close until the waning months of 2013, there is plenty of time to position accordingly.
Long-Term Outlook and Possible Plays
In sum, this deal offers an excellent growth opportunity for Gannett and should handsomely reward its long-term investors. However, it is entirely possible that Gannett will be forced to issue a more attractive offer for Belo’s shares. While this would reduce the perceived value of the deal, it would provide an added sweetener in the form of a significant arbitrage opportunity. Investors who perform adequate due diligence may wish to play this situation with a long position in Belo at a lower entry point or a long position in Gannett at its current levels.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article This Merger Could Produce Synergies and Hint at Things to Come originally appeared on Fool.com.
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