Gray Television To Acquire Raycom Media In $3.647 Bln Deal

(RTTNews) - Gray Television Inc. (GTN, GTN.A) and Raycom Media Inc., an employee-owned company, announced that they reached an agreement to combine their companies.

"Today we announce the transformation of Gray Television into a true leader in the broadcast television industry," said Hilton H. Howell, Jr., Gray's Chairman, President and CEO.

As per the terms of the merger agreement, Gray will acquire Raycom for $3.647 billion in total proceeds, consisting of $3.547 billion in enterprise value and $100 million of Raycom cash. The consideration will consist of $2.85 billion in cash, $650 million in a new series of preferred stock, and 11.5 million shares of Gray common stock.

Wells Fargo has underwritten the debt financing portion of the transaction in the amount of $2.525 billion. Gray's existing Term Loan B and Senior Unsecured Notes will remain in place. Expected strong free cash flow generation through the closing of all pending transactions and throughout 2018 should allow Gray to deleverage its capital structure following the closing.

Gray anticipates that, assuming a year-end 2018 closing, its total leverage ratio, net of all cash, would approximate 5.0 times trailing eight-quarter operating cash flow, including estimated synergies.

The transaction has been approved unanimously by the Boards of Directors of both Gray and Raycom. The transaction has also been approved by the requisite vote of the Raycom shareholders. No Gray shareholder vote will be required. Gray shareholders will retain 89 percent of the economic ownership of the Company following the closing.

Upon the closing, Raycom President and Chief Executive Officer, Pat LaPlatney, will become Gray's President and Co-Chief Executive Officer. In addition, Mr. LaPlatney and Raycom's former President and Chief Executive Officer, Paul McTear, both of whom are currently members of Raycom's Board of Directors, will join Gray's Board of Directors. At that time, Hilton Howell will become Executive Chairman and Co-Chief Executive Officer of Gray.

The transaction is subject to customary closing conditions and regulatory approvals. The parties expect to close the transaction in the fourth quarter of 2018.

Gray also announced today that, on July 1st, Bob Smith will become its Chief Operating Officer and Nick Waller will become its Chief Administrative Officer. Currently, Bob and Nick serve as Co-Chief Operating Officers. In his new role, Bob will oversee station operations and sales operations through the closing of the transaction.

During that period, Nick will oversee human resources, information technology, traffic and CRM systems, capital projects, and performance benchmarking. Nick also will focus on the transition and integration of pending acquisitions.

Raycom has initiated processes to sell or spin off Community Newspaper Holdings, Inc. or "CNHI", which owns community newspapers and information products including over 100 titles located in 23 states, as well as PureCars, a digital ad platform for the automotive industry. As a result, Gray will not acquire either CNHI or PureCars as part of this transaction.

Excluding CNHI and PureCars, the combined net revenue of both companies on a blended 2016/2017 basis would total approximately $2 billion.

Gray expects that the Raycom transaction will be substantially accretive on a free cash flow per share basis.

Wells Fargo Securities will begin a formal process to market the divestiture stations to qualified third parties. The divestitures may take the form of cash sales, swaps involving other television stations, or a combination of cash and swaps. Interested parties should contact Wells Fargo Securities directly and should not contact Gray or Raycom about the divestiture opportunities. The planned divestiture stations collectively represent less than 4 percent of the operating cash flow of the combined company (excluding CNHI and PureCars).

Based on the foregoing divestiture plan and the lack of other anticipated material regulatory concerns that might arise from the combination, the parties expect to close their transaction following receipt of regulatory and other approvals in the fourth quarter of 2018.