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Note 3 - Acquisitions

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

3. Acquisitions

Lubbock Transactions. On December 31, 2020, we acquired television station KLCW-TV (CW) and certain low power television stations in the Lubbock, Texas market (DMA 142), as well as certain non-license assets of KJTV-TV (FOX) and two additional low power stations and certain real estate, for a combined purchase price of $24 million, using cash on hand. On that date, we also entered into a shared services agreement with SagamoreHill to provide news and back-office services to KJTV-TV and its associated low power stations using cash on hand (the “Lubbock Transactions”).

Due to the proximity of the acquisition date to the date of the filing of our annual report on Form 10-K, we were unable to prepare the allocation of the purchase price until the first quarter of 2021. The following table summarizes the preliminary values of the assets acquired and resulting goodwill of the Lubbock Transactions (in millions):

Property and equipment		$	6
Operating lease right of use asset			1
Goodwill			6
Broadcast licenses			5
Other intangible assets			7
Other liabilities			(1	)
Total		$	24

These amounts are based upon management’s preliminary estimate of the fair values using valuation techniques including income, cost and market approaches. In determining the preliminary fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.

Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.

Amounts related to other intangible assets are being amortized over their estimated useful lives of approximately 1 to 4 years.

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, as well as future synergies that we expect to generate from each acquisition. The goodwill recognized related to this acquisition is deductible for income tax purposes.

Pending Acquisitions

Acquisition of Quincy. On January 31, 2021, we entered into an agreement with Quincy Media, Inc. (“Quincy”) to acquire all of the outstanding shares of capital stock of Quincy for $925 million in cash, subject to certain adjustments, including, among other things, adjustments based on a determination of net working capital, cash, transaction expenses and indebtedness, as provided in the purchase agreement (the “Quincy Transaction”).

On April 29, 2021, we entered into an agreement with Allen Media Broadcasting, LLC (“Allen”) to divest Quincy’s television stations in the seven markets in which we currently operate, for $380 million in cash, before taxes, in order to facilitate regulatory approvals for the Quincy Transaction (the “Allen Transaction”).

The Quincy Transaction and the Allen Transaction were completed simultaneously on August 2, 2021, using cash on hand and the net proceeds of the Allen Transaction.

Acquisition of Meredith. On May 3, 2021, we agreed to acquire all outstanding shares of Meredith Corporation (“Meredith”), subject to and immediately after the spinoff of Meredith’s National Media Group to the current Meredith shareholders (the “Meredith Transaction”). The agreement was amended on June 2, 2021 to revise the purchase consideration to $16.99 per share in cash, or $2.825 billion in total enterprise value. The parties expect to close the transaction in the fourth quarter of 2021. At the closing, Gray will acquire Meredith’s remaining operating division, known as the Local Media Group, which owns 17 television stations in 12 local markets, adding 11 new markets to our operations. To facilitate regulatory approvals for the Meredith Transaction, on July 14, 2021, we agreed to divest our existing television station WJRT (ABC) in the Flint-Saginaw, Michigan market, to Allen for $70 million in cash, before taxes.

The merger agreement contains certain termination rights for both parties. Upon termination under specific circumstances, Meredith would be required to pay us a termination fee of $113 million, including in the event that Meredith enters into a definitive agreement with respect to a superior proposal or an adverse recommendation is issued by Meredith’s board of directors with respect to the transaction. In certain circumstances, Meredith would only be required to pay us $73 million. If the required Meredith shareholder vote is not obtained or the transaction does not occur by the date specified in the merger agreement due to the failure of certain conditions to consummate the distribution and the spinoff, Meredith would be required to pay us an amount based upon the costs and expenses incurred by us related to the transaction, but not to exceed $10 million. However, if the merger agreement is terminated for failure to consummate certain financing arrangements by Meredith, a termination fee would be payable by Meredith in the amount of $73 million (in lieu of expense reimbursement). The merger agreement also provides that we will be required to pay a termination fee to Meredith of $125 million if the merger agreement is terminated by Meredith due to our breach of the agreement or failure to close, subject to certain limitations.

On June 2, 2021, we entered into a second amended and restated financing “Commitment Letter” that provides for debt financing for a portion of the purchase price to complete the Meredith Transaction consisting of an incremental term loan facility in an aggregate principal amount of $1.45 billion (the “2021 Term Loan”); a bridge facility in an aggregate principal amount of $1.475 billion (the “2021 Bridge Facility”) and an amendment to the Revolving Credit Facility, as defined herein, to increase the commitment thereunder to $425 million. The Commitment Letter contains conditions to funding of the debt financing customary for commitments of this type. The 2021 Term Loan will be secured on a pari passu basis with our other obligations under our 2019 Senior Credit Facility, and senior in lien priority to the 2021 Bridge Facility. The 2021 Bridge Facility will be second lien senior secured debt, ranking pari passu in right of payment with all our, and the guarantors’, other senior debt, but junior in lien priority to the liens securing the 2021 Term Loan and all other obligations under the 2019 Senior Credit Facility, in each case on terms reasonably satisfactory to the lead arranger. Various economic terms of the debt financing are subject to change in the process of syndication.

The transaction is subject to customary closing conditions and regulatory approvals, including certain consents necessary to effectuate the spinoff of Meredith’s National Media Group immediately prior to the closing of our acquisition of Meredith.