Gannett Co., Inc. (GCI), Belo Corp. (BLC): This Merger Could Produce Synergies and Hint at Things to Come

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.

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