M&A Arbitrage: Gannett & Belo

Shareholders could also force Gannett to increase the bid if they don't think it's fair. Although, I don't think it applies here.

HarvardOrBust:

Shareholders could also force Gannett to increase the bid if they don't think it's fair. Although, I don't think it applies here.

1) Why doesn't it apply here?

2) What explains the current price that's higher than offer price?

Thanks.

jesus of nazareth:

I have a question about the Gannett/Belo deal announced yesterday. Gennett was said to buy Belo for $13.75 per share in cash. But right now, Belo is trading at $14.07. Is it just people speculating that other bidders are going to come in, or Gannett is going to raise the price? Are there other reasons explaining this?

Thanks.

I think you got it. When this happens, investors believe a) Gannett will have to raise their price in order to have the deal get approved by shareholders, or b) other bidders will come in and drive the price higher.

jesus of nazareth:

HarvardOrBust:

Shareholders could also force Gannett to increase the bid if they don't think it's fair. Although, I don't think it applies here.

1) Why doesn't it apply here?

2) What explains the current price that's higher than offer price?

Thanks.

I don't know anything about the M&A space in media, but I'm guessing a 20% premium is favorable, especially considering the stock is up 80% YTD. I doubt shareholders will complain about that. Look at Dell for a better example. The premium was so low, you had shareholders pushing for new bids or increased bids.

HarvardOrBust:

jesus of nazareth:

HarvardOrBust:

Shareholders could also force Gannett to increase the bid if they don't think it's fair. Although, I don't think it applies here.

1) Why doesn't it apply here?

2) What explains the current price that's higher than offer price?

Thanks.

I don't know anything about the M&A space in media, but I'm guessing a 20% premium is favorable, especially considering the stock is up 80% YTD. I doubt shareholders will complain about that. Look at Dell for a better example. The premium was so low, you had shareholders pushing for new bids or increased bids.

I see. Thanks.

I was wondering about this myself. My fund was one of the largest shareholders of BLC, and we sold a big chunk off after the deal was announced. I can imagine another bidder, like SBGI. Or someone who wants the spectrum.

That said, it seems a little premature to me for the "market" to be speculating about another bidder.

KarateBoy:

HarvardOrBust:

jesus of nazareth:

HarvardOrBust:

Shareholders could also force Gannett to increase the bid if they don't think it's fair. Although, I don't think it applies here.

1) Why doesn't it apply here?

2) What explains the current price that's higher than offer price?

Thanks.

I don't know anything about the M&A space in media, but I'm guessing a 20% premium is favorable, especially considering the stock is up 80% YTD. I doubt shareholders will complain about that. Look at Dell for a better example. The premium was so low, you had shareholders pushing for new bids or increased bids.

And it's still trading below a market multiple. The Street did not understand the pricing power in renegotiating retransmission contracts and the ability to cheaply acquire earnings.

Elaborate, please! Also, why did your firm sell?

From your questions, it's not clear to me what exactly do you want to know more about...

Here's a quick link to the valuation multiple: http://finviz.com/quote.ashx?t=blc&ty=c&ta=1&p=d

I'm not the analyst on the name so here's the high level pitch.

BLC owns local TV stations and gets paid retransmission fees from the likes of DirecTV and Comcast. In this industry, there are two trends providing a tailwind:

1) On a per-viewer basis, their fees are very low, given them pricing power as contracts come-up for negotiation.

You also need to understand that the size of the company has a material effects on pricing power.

2) Current contracts allow the acquiring broadcaster to immediately include a target company into its current retransmission pricing scheme.

So when BLC acquires a local station, the seller may be getting a 10x EBITDA multiple, but the buyer may be pay only be paying 6x multiple post-synergies.

If you take point #1 and #2 together, you get a traditional roll-up story facilitated by multiple arbitrage and then you also get the kicker of increased economies of scale.

We sold BLC b/c it was trading near the takeout price. We did not expect a competing offer, but we still own some more so we would welcome it.

You got it, OP. The market is prognosticating a counter-bid, or a higher premium for the transaction to consummate. Do you do merge arb in your PA?