The final month of the second quarter has begun, and for the low-power television station licensee known as HC2 Broadcasting, a change in majority control is in the works. Pending FCC approval, approximately 75% of HC2’s ownership will be held by a OTC Markets entity led by CEO Kyle Kiser and founded by the man behind Dish and EchoStar.
With the closing on June 1 of a refinancing transaction, Innovate Corp. has moved ahead with an agreement that sees it sell a controlling interest in HC2 Broadcasting Holdings Inc. to CONX Corp.
With regulatory approval and the transaction’s expected closing, CONX will own approximately 75% of HC2 Broadcasting with Innovate holding the remaining 25% through “HC2 Holdco.”
For interim Innovate CEO Paul Voight, the company views the deal as “an important step forward in addressing Innovate’s capital structure while reinforcing our strategic priorities.”
Voigt continued, “Broadcasting and its subsidiaries have successfully acquired and built 260 TV broadcast television stations since 2017, with considerably more underway. Today the segment operates the largest portfolio of Class A and LPTV licenses in the country, distributing more than 50 broadcast networks in over 40 states.”
That has appeal to CONX, led by Kiser and created by Charlie Ergen (pictured, top left) — the brainchild behind one of the nation’s two direct broadcast satellite TV service providers and a frequent antagonist of broadcast TV companies seeking fair compensation for the retransmission of their free-to-air stations by a subscription-based MVPD.
As part of the merger, CONX has agreed to provide HC2 Broadcasting with an equity commitment of up to $75 million to be funded after closing of the merger, subject to reduction for post-closing purchase price adjustments, and certain expense and indemnification obligations.
For an 18-month period from and after the closing date, Innovate will have the option to purchase up to 15% of HC2 Broadcasting’s ownership, on a fully diluted basis, from CONX.
Meanwhile, an affiliate of CONX has secured a letter agreement granting it the option, exercisable for a period of two years, to acquire up to 80.1% of the equity interests of HC2 Broadcasting on a fully diluted basis.
The CONX deal coincides with HC2 Broadcasting entering into a $105 million new loan agreement with “HC2 Merger Sub,” which is a CONX subsidiary.
Proceeds of the New Loan were used to fully satisfy HC2 Broadcasting’s existing 8.5% and 11.45% notes to fund the repurchase of certain equity interests held by HC2 Broadcasting’s noteholders. The funds will also be used to pay related transaction costs.
The New Loan and interest accrued are expected to be extinguished as consideration in the merger and will not require cash repayment upon closing of the merger. The New Loan matures on May 29, 2027, subject to earlier acceleration in accordance with its terms.
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