Merged Gray-Benedek a candidate for buyout

Apr 8, 2002  •  Post A Comment

A buyer may emerge in the coming months to acquire the proposed combined Gray Communications and Benedek Broadcasting station group.
That was the speculation of broadcast TV brokers and analysts last week as Gray announced it would acquire bankrupt Benedek for $530 million in cash, creating the largest non-network owner of CBS-affiliated stations not owned by a major group. A definitive agreement must be negotiated, despite four months of negotiations.
While the deal is attributable to Benedek’s long-existing financial woes, experts say more consolidating moves will emerge as the Federal Communications Commission makes clear how quickly it will respond to directives from the U.S. Court of Appeals to further deregulate TV station ownership.
“The deregulation process got the checkered flag,” said Wachovia Securities analyst Bishop Cheen. “Now it will be another six to nine months before the FCC responds and deals begin to surface. But companies are definitely talking.”
Station swaps such as the ones recently announced between Fox Entertainment Group and Meredith Broadcasting will continue in anticipation of the changes. However, broadcasters say the next wave of television station consolidation has been slowed by protracted regulatory review and sluggish economics.
In fact, some analysts cautioned that deregulation-driven station sales may not be all that automatic due to overriding economics-as in the case of cable systems. Cable operators recently have been hurt by depressed stock prices and cash flows, making it difficult for sellers to get the value they seek and making it difficult for buyers to use their stock as deal currency.
The merged Gray-Benedek group will include 35 mostly midsize stations: 20 CBS affiliates, seven NBC affiliates, seven ABC affiliates and one Fox affiliate. Benedek is under contract to sell a CBS-affiliated station in Wheeling, W.Va., for $18.5 million and may seek to sell other stations. Gray will retain Benedek’s management team headed by Benedek President Jim Yager.
Gray will pay about 10.5 times 2001 broadcast cash flow for Benedek, which filed for bankruptcy last month when bondholders failed to devise a plan to pay overdue interest payments on at least $154 million in bonds.
Late last week, Standard & Poor’s placed Gray on credit watch with negative implications in light of the announced deal and Gray’s $400 million in outstanding debt. The final outcome will depend on how conditions in capital markets impact the mix of debt and equity in the transaction, which could ultimately “enhance Gray’s geographic and network diversity,” the agency said.