In a combination of broadcast groups they are billing as creating "the single largest owner of top-rated local television stations and digital assets in the country," Gray is buying Raycom in a deal valued at $3.6 billion.
Raycom president Pat LaPlatney will become president of the combined company, while Raycom's former president will become a member of the board.
The company will reach a combined 24% of the country, and Raycom will spin off over 100 local newspapers and the digital ad platform PureCars. But Gray will also be getting Raycom Sports; RTM Productions, an automotive media company, and Broadview Media, a post-production and signage house.
The proposed merger comes against the backdrop of Sinclair Broadcast Group's pending acquisition of Tribune Media to create the biggest holding of U.S. TV stations (62% of U.S. households). Nexstar Media, which acquired Media General stations in 2017 for $4.6 billion, is the second-biggest station group (39% U.S. coverage).
The deal does not rely on the the FCC's UHF discount that is currently under court review. It would be even less with the discount, so there no issues with the deal running up against a court decision affecting that cap.
Gray will divest stations in nine markets to comply with FCC local ownership restrictions rather than try to retain some where it could make a case for it. The FCC is allowing ownership of two of the top four-rated stations in a market on a case-by-case basis.
It will divest Raycom stations WTNZ Knoxville (Fox), WTOL Toledo (CBS), KXXV Waco (ABC), WTXL Tallahassee (ABC), WFXG (Fox) Augusta, KWES Odessa (NBC), WGPX Panama City (Fox), WDFX Dothan (Fox), and Gray's WSWG Albany (CBS).
While LaPlatney will become president and co-CEO, Gray chairman and CEO Hilton Howell is set to become executive chairman and co-CEO.
As of July 1, Bob Smith will become COO and Nick Waller chief administrative officer: they are currently Gray co-COOs. Smith will oversee station operations and sales through the closing. Waller will oversee human resources, information technology, traffic and CRM systems, as well as capital projects and performance benchmarking, according to the company.
“Today we announce the transformation of Gray Television into a true leader in the broadcast television industry,” said Howell. “Combining our company with the excellent Raycom stations and the superb Raycom employees will create a powerhouse local media operation. Together, this new portfolio of leading local media outlets will excel at what they do best, which is to provide the local news that local communities trust, the entertainment and sports content that viewers crave, and the incredible reach that advertisers demand."
And possibly in an effort to distinguish it from the highly-criticized Sinclair-Tribune deal still trying to make it past regulators, Howell said: "Indeed, this is a transaction in which there can be no doubt that local community standards will be honored and embraced." Wells Fargo will be shopping the stations.
The companies said they don't expect any regulatory issues and do expect to close the deal by the fourth quarter of this year.
The combined companies assets would include:
• "142 full-power television stations serving 92 markets, the third largest portfolio of
stations and markets in the country.
• "A high-quality station portfolio that reaches 24 percent of U.S. television households,
ranging from large markets such as Tampa-Sarasota, Cleveland, and Charlotte, to some
of the smallest markets like Ottumwa, Fairbanks, Presque Isle and North Platte.
• "62 television stations ranked first in all-day Nielsen ratings in their local markets, which
is the highest number of top-ranked television stations owned by any broadcaster.
• "92 percent of markets with the #1 or the #2 Nielsen rated local television station.
• "Nearly 400 separate program streams including approximately 165 affiliates of ABC,
NBC, CBS, and Fox, and over 100 affiliates of CW, MyNetwork, and MeTV."
Wells Fargo Securities, LLC served as financial adviser and Cooley LLP and Jones Day served as legal counsel for Gray. Stonebridge Capital served as financial adviser and Robinson Bradshaw and Covington & Burling served as legal counsel for Raycom.
"Broadcasters need scale today to compete with the likes of Facebook, Apple, Netflix and Google," said Adonis Hoffman, head of communications consulting firm of Business in the Public Interest, of the announced deal. "I hope regulators, Congress and the Administration come to understand the new market reality in the media. The only missing element in this deal is a move to advance diversity in ownership and content -- especially given the markets served. But that remains an enduring challenge for the entire industry."
Volker Moerbitz, research analyst with Kagan, S&P Global Market Intelligence, opined that "today’s deal announcement between Gray Television and Raycom Media will make for a small- and mid-sized market powerhouse with many market-leading stations. Gray has always concentrated on small markets with their top-market being Knoxville, TN, ranked 61. Until today, Gray only covered nine mid-sized marks while everything else was smaller than rank 75. After the merger, the company will still be mainly a small market player, but they are now adding three top-25 markets and ten mid-sized markets, making it a more diversified portfolio."
Moerbitz added in a statement: "What’s most impressive is the very small amount of overlap -- only nine markets – which could make the deal easier to close given the announced divestitures. Overall, the deal gives Gray improved national scale to better position it to compete for ad dollars, and raise its leverage in negotiations with multichannel operators and network partners."