Second Shot at Tribune is Music to Sook’s Ears

Nexstar interested in more stations, especially if caps rise
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After getting outbid for Tribune Co. by Sinclair Broadcast Group in 2017, Nexstar Media CEO Perry Sook was humming a happier tune that he was able to snap it up for $6.4 billion when it became available again.

“If you were to put this acquisition effort to music, I’m trying to decide if the correct depiction is Sammy Cahn’s 'Love is Lovelier the Second Time Around' or the Grateful Dead’s 'What a Long Strange Trip it’s Been,'” Sook said on Nexstar’s call with analysts to lay out the acquisition early Monday morning.

“Regardless we are thrilled to be here. It’s not every day that we can find and acquire and negotiate an acquisition with 40-plus percent free cash flow accretion.” Sook said.

Sook said Nexstar was willing to pay a higher price this year because Tribune appears to be in better shape now than when it first kicked the station groups’ tires.

Tribune’s stations have performed better that expected, its WGN America cable network has turned from losing money to cash flow positive, and it has sold off valuable real estate and made a deal to monetize its 5% stake in the Cubs.

Nexstar also sees $160 million in synergies it can generate when it completes the acquisition of Tribune. Those include $20 million in corporate overhead savings, $65 million in expense reductions including support services and a gain of $75 million in applying Nexstar’s retransmission rates to Tribune station subscribers.

Tribune became available because Sinclair’s efforts to get regulator approval for its deal seemed to raise red flags with the chairman of the FCC. When the FCC announced plans for a closer review of the deal, both companies withdrew from the deal and wound up suing each other.

Now that Tribune has been sold at an even hire price, the suits might go away, Sook suggested.

“That’s between Tribune and Sinclair and vice versa. But obviously I expect there will be conversation on that in the coming days. The Tribune shareholders, except for the time value of money, are ending up with what we think is a superior result to the last accepted bid, so hopefully that will lead to the parties discussion a potential resolution. But again, until we’re in control we’re not in control and can’t really speak to that.”

Sook pointed to Nexstar’s record of getting regulatory approval over 22 years of doing station deals as an indication its acquisition of Tribune wouldn’t get hung up in Washington.

“I think we will take the tack that we always have of being respectful of the regulatory authorities, mindful of the rules, and delivering a compliance game plan that all parties can agree to,” Sook said. “I don’t think we will do anything different. I think that it might be different than the approach that was taken by the previous acquirer. But it’s not going to be any different than the track record of success and the credibility that we’ve built with these regulatory agencies over 20 plus years of doing business with them.”

Sook said that to gain compliance, he expects to have to divest stations worth about $1 billion.

Fox had been interested in buying Tribune stations from Sinclair, but Sook said he hadn’t had discussions about selling stations to Fox.

“The short answer is no. There’s a lot going on at New Fox that hasn’t yet become New Fox yet. We’ll see when we put our divestitures out to the marketplace what if anything they are interested in,” he said.

But selling stations should leave room for acquisitions and swaps that could create duopolies in markets where Nexstar has stations.

And if the ownership caps do rise, Nexstar will be interested in addition to its scale.

“Obviously we’re going to have our hands full getting it right here and doing it right. And that will be our primary focus. Under the current rules we have the ability to do incremental acquisitions, not a scale acquisition until or unless the rules change,” he said..

Asked if Nexstar would be interested in the stations that Cox is reportedly interested in selling, Sook said "if the rules were to change and there were an opportunity that was as accretive as this, we’d obviously be very interested. But our primary focus is going to be to complete the acquisition, clear the regulator hurdles, integrate the stations with similar success that we’ve had with Media General and have that benefit all flow through to the benefit of our shareholder.”

Tribune owns cable network WGN America and analysts wanted to know if Nexstar planned to sell WGNA to reduce its debt.

“There have been some expressions of interest in buying that. Obviously once we own it a divestiture is a taxable event so we would want to make sure we would be properly compensated for that,” Sook said. “I would say that we are happy with the progress that they have made but again if someone is willing to pay a significant premium we’re also happy to have that conversation as well. But currently we have no plans to immediately divest WGNA.”

Sook didn’t sound like selling Tribunes stake in Food Network was on the front burner either, given the millions in cash flow it contributes to the company’s bottom line.

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