Gray Television Eyeing WAGM-TV Acquisition

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Apr 29, 2015

Gray Television (GTN, Financial) has announced that it has agreed to acquire WAGM in Presque Isle, Maine, for $10.25 million.

Gray Television, Inc., is a television broadcast company established in 1946 by James Harrison Gray. Headquartered in Atlanta, Georgia, the company owns and operates television stations and leading digital assets in markets throughout the United States.

The $10.25 million deal

Gray Television has reached an agreement with NEPSK Inc. to acquire WAGM-TV for $10.25 million. The transaction is expected to be financed by cash.

According to Gray, WAGM-TV is one of the most-watched local television stations in the United States and is the highest rated television station in the Presque Isle DMA (Direct memory access). WAGM-TV's two digital channels are affiliated with the CBS Network (CBS, Financial) and the FOX Network (FOX, Financial).

Gray Television owns and operates television stations and important digital assets in markets all over the United States. Nearly half of Gray’s revenue comes from local program channels, and most of it is focused on news. The other half of the revenue is mainly divided between network programming and syndicated programming, and also some revenue comes from its internet operations.

Its focus on local news is primarily because revenue pours in the form of ad sales along with re-transmission fees that is charged by Gray to cable and satellite service providers that streams its content. Those providers include big names such as DirecTV (DTV, Financial), Time Warner Cable (TWC, Financial) and Comcast (CMCSA, Financial).

Gray's acquisition of WAGM-TV will be immediate through free cash flow, since the price works out to be less than six times the anticipated pro forma broadcast cash flow of WAGM-TV (blended average).

The transaction is expected to take final shape in the third quarter of 2015 and is subject to regulatory and other approvals.

Growth trajectory of Gray Television

According to Kevin Latek, Gray’s senior vice president of business affairs, the acquisition of WAGM-TV by Gray Television presents the company the opportunity to own a television station with an impressive track record of service and localism.

The company's acquisition strategy is to explore stations that are already top ranking in local news viewership, and to garner the loyal audience pool. The transaction is consistent with Gray’s tactic of enhancing shareholder value through select purchases of market-leading stations that brings in more viewership along with a strong revenue bucket.

According to BIA/Kelsey, in 2013, WAGM grabbed around 95% of the market's broadcast revenue.

Gray is also making a foray into digital content that can be viewed on mobile devices and computers, but it still depends mostly on traditional TV viewing for the bulk share of its business. In 2014, digital media comprised of only about 5% of its revenue.

The company intends to continue growing its digital media operation. As part of that arrangement, Gray has launched five of its CBS-affiliated stations on CBS All Access, CBS's subscription video on-demand and live-streaming service.

The company continues to expand with a string of acquisitions and has announced two more deals in 2015, including WAGM-TV.

Conclusion

Gray has a most advantageous IBD Composite Rating of 99. It belongs to IBD's Media-Diversified group, which ranks No. 12 out of 197 industries tracked.

Although Gray is growing organically as well, the 47% rise in revenue was driven by acquisitions last year in 2014. It was the company's biggest top-line achievement in at least eight years.

Gray has recorded four straight quarters of accelerating revenue growth to date.