Chris Ripley is aggressively moving forward with an unsolicited offer to acquire the broadcast media company led by Adam Symson that’s parent to a host of over-the-air TV stations, the Ion Television network and a host of digital and multicast networks including Court TV, Bounce, Scripps News and Laff.
For shareholders of Sinclair Inc. and The E.W. Scripps Co., it’s clearly no laughing matter. For cable TV lobbying group ACA Connects, the merger could negatively impact future retransmission consent fee negotiations.
In a letter distributed to Scripps board members on Monday and disclosed in an SEC filing, Ripley, the Sinclair President/CEO, says the publicly traded company he oversees is “prepared to enter into definitive documentation immediately upon engagement with Scripps.”
And, Sinclair seeks a response from the Scripps Board of Directors on the Moelis-prepared proposal overview by Friday, December 5, “given the importance and timeliness of the transaction.”
The merger proposal offered by Ripley is one Sinclair believes “reflects our conviction that a combination of Sinclair and Scripps would unlock substantial and enduring value for shareholders, strengthen local journalism, and position the combined company and employees for long-term success.”
To make the combination of Sinclair and Scripps happen, Baltimore-headquartered Sinclair is proposing that it acquire all outstanding shares of “SSP” it doesn’t already own, at $7 per share. Specifically, this would consist of $2.72 per share in cash and $4.28 in Sinclair’s “NewCo” common stock based on a 7x EV/EBITDA multiple. Sinclair claims this is “in-line” with current trading levels for “leading broadcast groups.”
Furthermore, Ripley says this represents a 200% premium to Scripps’ 30-day volume-weighted average price as of November 6 — the last trading day prior to significant share purchase activity by Sinclair, leading to a 9.9% equity interest in Scripps.
Scripps shareholders could cash out, or they could get stock consideration for each share of “SSP” they own.
Upon closing, Scripps shareholders would possess 12.7% of the combined entity — should Sinclair be successful in wooing a company that, until now, has been cool to any unwanted overtures from Ripley.
SPIN TO WIN
The proposed merger would be executed through a separation of Sinclair’s business ventures and “certain corporate infrastructure from Sinclair’s broadcast business,” followed by a merger of the broadcast assets with The E.W. Scripps Co.
This explains why Sinclair recently placed its broadcast assets under strategic review.
“The new publicly traded parent company would retain Sinclair’s dual-class structure,” Ripley explained. “The Scripps family would retain voting control of the issuer of existing Scripps debt and preferred stock during an integration period to avoid unnecessary refinancing expenses or covenant disruption.”
Ripley also commented that Sinclair is “confident, under existing rules, including the national cap, that the transaction can be completed in a timely manner with limited select divestitures.”
The combined company formed from Scripps and Sinclair’s broadcast assets would see board representation “proportional to each company’s share ownership” and have a management team selected by the newly formed company’s board of directors.
In the newsrooms of its combined TV stations, “adopting jointly developed editorial standards and appointing an independent ombudsman, selected by representatives of the Scripps and Sinclair families and the board’s independent directors.”
“Meaningful operations” would remain in Scripps’ corporate headquarters of Cincinnati, and Sinclair’s Hunt Valley, Md., operations base.
What about the name of this proposed future company? “Sinclair is supportive of retaining the E.W. Scripps corporate name or selecting a new one.”
SINCLAIR’S PAYMENT PLAN
How would Sinclair finance the proposed merger of its broadcast assets with Scripps?
“The cash portion of the consideration would be funded entirely from Sinclair’s existing balance sheet and available liquidity,” Ripley said. This was recently “enhanced” by a new $375 million accounts receivable securitization facility.
A “new Scripps” would maintain each company’s respective outstanding debt and preferred stock, as Ripley shared, “The combined company, including approximately $325 million in estimated synergies, would have a market capitalization of $2.9 billion, based on a 7.0 EV/EBIDTA multiple.”
SCRIPPS RESPONDS TO RIPLEY
Asked for comment by RBR+TVBR, a Scripps spokesperson provided a statement.
“The E.W. Scripps Company today received an unsolicited acquisition proposal from Sinclair, Inc.,” the company said. “Scripps shareholders do not need to take any action at this time. Consistent with its fiduciary duties and in consultation with its legal and financial advisors, the company’s board of directors will carefully review and evaluate any proposals, including the unsolicited Sinclair proposal, to determine the course of action that it believes is in the best interests of the company and all of its shareholders as well as its employees and the many communities and audiences it serves across the United States.”
Importantly, Scripps said it does not intend to comment further on Sinclair’s unsolicited proposal until the board has completed its review.
As of 12:24pm Eastern on Monday, Scripps shares were up by 6.8% to $4.40 on news of the hostile takeover offer from Sinclair. At the same time, shares in Sinclair were down by 1.3% to $15.44.
ACA CONNECTS CONDEMNS SINCLAIR OVER FUTURE RETRANS WORRIES
As America’s Communications Association, which represents small and independent MVPDs across the nation, sees it, the potential merger between Sinclair Inc. and The E.W. Scripps is unacceptable. But, it has largely to do with one matter — forthcoming carriage fee agreements.
“Sinclair is brazenly seeking a mega-footprint nationwide and in local markets across the country, which will allow them to impose even more exorbitant retransmission consent fees,” ACA Connects President/CEO Grant Spellmeyer asserts. “These higher prices will leave consumers with a painful choice—pay up or lose your programming. Just like the Nexstar and Tegna merger, the government should reject this deal and ensure the broadcaster media marketplace remains fair and competitive.”
Spellmeyer’s comments are largely based on opinion, repeatedly shared by an organization that in times of retransmission consent impasses is quick to point fingers at broadcast TV station owners. Carriage fee agreements require an affirmative nod from both MVPDs and TV station owners, and in recent years some of the nation’s biggest cable TV providers have been protecting C-suite salaries while suffering from “cord-cutting” that has yet to ebb. Meanwhile, local broadcast TV stations remain some of cable TV’s most-watched channels, thus requiring fair compensation to station ownership groups.
