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Moody's: Arbitrage Opportunities Spur M&A in US Broadcast Television

Global Credit Research - 07 May 2013

New York, May 07, 2013 -- Mergers and acquisitions in the US broadcast television sector represent more than an example of the M&A activity picking up in other US corporate sectors, Moody's Investors Services says in a new report. Broadcast deals now offer an additional sweetener for the buyer: immediate arbitrage opportunities.

"Broadcast acquisitions give buyers immediate financial arbitrage with minimal risk, allowing them to raise the retransmission fees paid by the seller's existing cable, satellite and telecom video service providers," says Vice President -- Senior Analyst Carl Salas in the new report, "US Broadcast Buyers and Sellers Benefit as New Wave of Arbitrageurs Stake Their Claims."

"Both buyers and sellers stand to benefit because buyers, armed with more favorable retransmission agreements, can offer sellers generous multiples for the chance to gain arbitrage opportunities," Salas adds.

The mature US television broadcast industry continues to consolidate. The value of M&A deals among pure-play television broadcasters will surpass $3.5 billion, and could even exceed $6 billion, in 2013-2014 as buyers seize arbitrage opportunities.

The Moody's report says that larger broadcast owners such as LIN Television, Nexstar Broadcasting, Sinclair Broadcast Group and Tribune Company, among others, appear the most likely buyers over the next year, while Allbritton Communications and broadcasters owned by financial sponsors, including FoxCo, Granite Broadcasting and Local TV, rank among the likeliest takeover targets.

Broadcasters' financial sponsors and private equity investors are seizing the moment to take a profit on their broadcast holdings, Salas says. The 2012 political campaign brought in record levels of ad cash, giving potential acquirers money to spend or to repay debt balances, while making targets more attractive.

In the near future, Moody's expects that Oak Hill Capital will sell stakes in Local TV and FoxCo, and that Silver Point Capital will follow up its divesting of holdings in Communications Corporation of America with the sale of Granite Broadcasting.

Companies buying US broadcasters or their assets have so far avoided rating downgrades, even when the buyer's leverage increases at the outset. Indeed, ratings have improved in at least six significant transactions.

"M&A transactions improve the acquiring broadcaster's business model, including diversification and scale," Salas says. "They can also add another primary signal to the same operator in a market, thereby increasing a broadcaster's presence and offering meaningful cost reductions."

Moody's research subscribers can access this report at http://www.moodys.com/research/US-Broadcast-Television-US-Broadcast-Buyers-and-Sellers-Benefit-as--PBC_153252.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Carl Salas
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
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John Diaz
MD - Corporate Finance
Corporate Finance Group
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Moody's: Arbitrage Opportunities Spur M&A in US Broadcast Television
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