Standard General LP has been after a TEGNA Inc. sale for more than two years, but analysts believe it could take more time, and potentially more money, for the hedge fund to take the broadcaster private.
Under the proposed transaction, Standard General will pay $24 per share for TEGNA in an all-cash transaction that carries an equity value of $5.4 billion. Including the assumption of debt, the deal carries an enterprise value of $8.6 billion. Upon close, TEGNA would become fully private and owned by Standard General, with nonvoting shares controlled by affiliates of Apollo Global Management Inc. and its Cox Media Group Inc.
The largest independent owner of NBC (US) affiliates, TEGNA has 64 stations in 51 markets, including outlets in such top 25 markets as Washington D.C., Phoenix and Denver.
While Standard General expects the deal to close in the second half of the year, analysts differ on how lengthy the regulatory review might be. They also hold varying views about the bid's price.
Reading regulatory tea leaves
A major question is how regulators will view Apollo's and Cox Media's role in the deal. Cox Media and TEGNA's combined market reach would surpass the 39% national ownership cap imposed by the Federal Communications Commission if the agency views the two companies as a single entity. The cap prohibits a single broadcast station group from owning TV stations that together reach more than 39% of U.S. TV households.
"Standard General, Cox, Apollo and TEGNA are all very familiar with the Federal Communications Commission's regulations, and thus are likely to offer a deal that is fully compliant with the ownership cap," Wells Fargo analyst Steven Cahall wrote in a note.
Cahall pointed to TEGNA's planned divestitures of five stations in Dallas, Houston and Austin, Texas. These stations will be sold to Cox Media Group.
Others are not so sanguine.
Huber Research Partners analyst Doug Arthur is not sure the matter will unfold quickly before the U.S. Department of Justice and the FCC.
Billing the transaction as "somewhat convoluted," Arthur said the proposed deal structure — under which Standard General would control all of the voting rights of the equity, and Cox Media Group/Apollo affiliates would hold securities in the new entity without any voting rights — would likely ultimately satisfy regulators.
However, Arthur pointed to Sinclair Broadcast Group Inc.'s failed complex ownership proposal around station divestitures to facilitate its attempted acquisition of Tribune Media Co. in 2018. That deal fell apart after the FCC alleged Sinclair made several misrepresentations around its proposed divestitures.
While not a direct apples-to-apples comparison with the current deal, Arthur said the commission's precedent with Sinclair means "we expect this [TEGNA's] proposed structure to undergo a lengthy review."
Time is money
A lengthy review would end up costing Standard General time and money. The hedge will pay an additional monthly "ticking fee" of 5 cents per share if the deal closes between nine and 12 months. The monthly amount increases to 7.5 cents if deal completion occurs within 12 to 13 months, 10 cents if between 13 and 14 months, and to 12.5 cents if within 14 to 15 months.
Cahall believes the projected second-half closing and "ticking fee" suggest Standard General is confident of a relatively straightforward closing process.
Standard General founding partner and Chief Investment Officer Soo Kim expressed optimism, telling The Wall Street Journal that Apollo is only a financing partner. Kim added that TEGNA becoming the country's largest minority-owned, woman-led broadcast group would also help the deal pass regulatory muster.
At close, Standard General intends to appoint Deb McDermott as TEGNA CEO.
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The price is right
Huber's Arthur questioned the $24-per-share price tag on the deal, noting that it matches Huber Research's long-held price target for TEGNA and represents a 7.7x average of estimated 2022 and 2023 EBITDA.
"The offer price — as we have commented for some time — appears very low," Arthur said.
Still, he is not convinced TEGNA could find a better offer at this point, noting the lack of available strategic buyers, the general reluctance of leveraged-buyout firms to acquire within local broadcasting and the FCC's rigid ownership cap rules. "This seems to be the best outcome at this point in time," Arthur said.
Nielson said the $24-per-share offer had been widely rumored and was largely expected.
Cahall deems the prospective deal as giving "everyone what they want." He noted Apollo has been looking to partner its legacy Cox Media Group and Northwest Broadcasting Inc. assets for some time with a bigger station group, and Standard has been a longtime holder and agitator via proxy battles with TEGNA management.
"We see it as the likely and best conclusion of the last few years' affairs," Cahall said.
