GANNETT CO., INC. 
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(Reuters) - Gannett Co Inc (>> Gannett Co., Inc.), the largest U.S. newspaper chain, said it will pay $1.5 billion (957.1 million pounds) for television company Belo Corp (>> Belo Corp), adding a stable of faster-growing TV assets that will offset the company's newspaper businesses.
The deal would nearly double Gannett's broadcasting holdings, making it the fourth-largest U.S. owner of major network affiliates, reaching nearly one-third of U.S. households, the company said on Thursday.
Gannett's $13.75-per-share offer represents a 28 percent premium to Belo's close on Wednesday. Shares in both companies soared in early trading, with Gannett hitting a five-year high.
If the transaction is approved, Gannett's broadcast segment would contribute more than half of the company's pro-forma earnings before interest, tax, depreciation and amortization.
Gannett said it would generate significant free cash flow and increase its operating earnings per share by about 50 cents in the first year. It will also result in some $175 million of annual savings within three years after closing.
Gannett Chief Executive Gracia Martore said the deal would give the company a "more favourable balance," with most of its earnings coming from higher-growth assets.
Martore also made clear that the purchase would not keep Gannett from future deal making.
"I think what we have is tremendous financial flexibility," she said on a conference call with analysts. "We have a balance sheet that is actually even financially stronger today."
One Gannett shareholder said Belo would give the company much more leverage with advertisers.
"With one-third of the country covered by their TV stations, no automaker or auto dealer can ignore their power in the U.S.," said Bill Smead, chief investment officer of Smead Capital Management, which lists Gannett as its third-biggest holding.
"This is an undervalued company and even more undervalued with an additional 50 cents per share in earnings the first year," Smead said via an emailed statement.
CROSS-OWNERSHIP
Belo owns and operates 20 television stations, with nine in the top 25 markets, and their associated websites.
The deal, which is expected to close by the end of this year, will need antitrust approval, Federal Communications Commission (FCC) approval, and approval by holders of two-thirds of Belo shares, Gannett said.
Despite the new company's scope, Gannett executives said they did not expect any regulatory problems.
There are five markets where the company said it would have to make licensing arrangements with other operators for certain TV stations. Gannett said it would still be able to recognize the financial performance of those stations in its own results.
"Our FCC counsels, a couple of them, have given us great confidence that we'll be able to do that," Martore said.
One veteran of the U.S. Department of Justice said he expected the deal to be approved. If anything, he said, the government might be concerned about access to affordable advertising for small, local companies like funeral homes and car dealerships in the areas where Gannett and Belo overlap.
"That will scare the Justice Department into taking a close look," said Stephen Axinn, an attorney now in private practice.
Gannett's shares soared 28.4 percent to $25.49 in early NYSE trading, their highest level since June 2008. Belo's shares were 27.5 percent higher at $13.68.
Belo's directors and executive officers, who collectively own about 42 percent of the voting power of Belo's outstanding stock, have already agreed to vote in favour of the deal. Gannett expects to finance the purchase through cash on hand and accessing capital markets as well as bank financing.
J.P. Morgan Securities provided financial advice and Nixon Peabody and Paul Hastings were legal advisers to Gannett. Belo's financial adviser was RBC Capital Markets and Wachtell Lipton Rosen & Katz acted as its legal adviser.
(Additional reporting by Diane Bartz in Washington; Editing by Gerald E. McCormick and Maureen Bavdek)
By Sinead Carew and Ben Berkowitz
