| Acquisitions |
Acquisitions
Nexstar Stations
On September 19, 2019 we completed our previously announced acquisition of 11 local television stations in eight markets, including eight Big Four affiliates, from Nexstar Media Group (the Nexstar Stations). These stations were divested by Nexstar Media Group in connection with its acquisition of Tribune Media Company. The television stations acquired are listed in the table below: | | | | | | Market | | Station | | Affiliation | Hartford-New Haven, CT | | WTIC/WCCT | | FOX/CW | Harrisburg-Lancaster-Lebanon-York, PA | | WPMT | | FOX | Memphis, TN | | WATN/WLMT | | ABC/CW | Wilkes Barre-Scranton, PA | | WNEP | | ABC | Des Moines-Ames, IA | | WOI/KCWI | | ABC/CW | Huntsville-Decatur-Florence, AL | | WZDX | | FOX | Davenport, IA and Rock Island-Moline, IL | | WQAD | | ABC | Ft. Smith-Fayetteville-Springdale-Rogers, AR | | KFSM | | CBS |
The estimated purchase price for the Nexstar Stations is approximately $769.1 million which includes a base purchase price of $740.0 million and estimated working capital of $29.1 million. The transaction was structured as an asset purchase and financed through the use of a portion of the $1.1 billion of Senior Notes issued on September 13, 2019 and borrowing under our revolving credit facility (see Note 5). The acquisition of the Nexstar Stations adds complementary markets to our existing portfolio of top network affiliates, including four affiliates in presidential election battleground states.
Dispatch Stations
On August 8, 2019 we completed the previously announced acquisition of Dispatch Broadcast Group’s two top-rated television stations and two radio stations (the Dispatch Stations). Through this acquisition we purchased WTHR, the NBC affiliate station in Indianapolis, IN, WBNS, the CBS affiliate in Columbus, OH and WBNS Radio (97.1 FM and 1460 AM) in Columbus, OH.
The estimated purchase price for the Dispatch Stations is approximately $553.7 million which consists of a base purchase price of $535.0 million and estimated working capital and cash acquired of $18.7 million. The transaction was structured as a stock purchase and financed through available cash and borrowing under our revolving credit facility. The acquisition of the Dispatch Stations expands our portfolio of top-rated big four affiliates in large markets.
Justice and Quest Multicast Networks
On June 18, 2019, we completed the acquisition of the remaining approximately 85% interest that we did not previously own in the multicast networks Justice Network and Quest from Cooper Media. Justice and Quest are two leading multicast networks that offer unique ad-supported programming. Justice Network’s content is focused on true-crime genre, while Quest features factual-entertainment programs such as science, history, and adventure-reality series.
Cash paid for this acquisition was $77.2 million (which included $4.7 million for estimated working capital paid at closing), funded through available cash and borrowing under our revolving credit facility. As a result of acquiring the remaining ownership of the networks, we recognized a $7.3 million gain due to the write-up of our prior investment in the Justice Network and Quest multicast networks to its fair value at the time of the acquisition. This gain was recorded in Other non-operating items, net within the Consolidated Statement of Income.
Gray Stations
On January 2, 2019, we completed our acquisition of WTOL, the CBS affiliate in Toledo, OH, and KWES, the NBC affiliate in Midland-Odessa, TX from Gray Television, Inc (the Gray Stations). The final purchase price was approximately $109.9 million, which includes working capital of approximately $4.9 million which was funded through the use of available cash and borrowing under our revolving credit facility. WTOL and KWES are strong local media brands in key markets, and they further expand our station portfolio of top 4 affiliates.
We refer to these four acquisitions collectively as the “Recent Acquisitions”.
The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed in connection with the Recent Acquisitions (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | Nexstar Stations | | Dispatch Stations | | Justice & Quest | | Gray Stations | | Total | Cash | | $ | — |
| | $ | 2,363 |
| | $ | — |
|
| $ | — |
| | $ | 2,363 |
| Accounts receivable | | 35,459 |
| | 26,680 |
| | 8,501 |
|
| 5,553 |
| | 76,193 |
| Prepaid and other current assets | | 4,760 |
| | 6,165 |
| | 6,987 |
|
| 988 |
| | 18,900 |
| Property and equipment | | 47,339 |
| | 40,856 |
| | 369 |
|
| 11,757 |
| | 100,321 |
| Goodwill | | 84,252 |
| | 158,077 |
| | 23,413 |
|
| 11,458 |
| | 277,200 |
| FCC licenses | | 415,225 |
| | 298,974 |
| | — |
|
| 53,378 |
| | 767,577 |
| Retransmission agreements | | 76,894 |
| | 55,366 |
| | — |
| | 12,253 |
| | 144,513 |
| Network affiliation agreements | | 115,340 |
| | 83,048 |
| | — |
| | 16,105 |
| | 214,493 |
| Right-of-use assets for operating leases | | 19,064 |
| | 362 |
| | — |
| | 252 |
| | 19,678 |
| Other intangible assets | | — |
| | — |
| | 52,553 |
|
| — |
| | 52,553 |
| Other noncurrent assets | | 2,015 |
| | — |
| | 5,252 |
|
| 18 |
| | 7,285 |
| Total assets acquired | | $ | 800,348 |
| | $ | 671,891 |
| | $ | 97,075 |
| | $ | 111,762 |
| | $ | 1,681,076 |
| Accounts Payable | | 719 |
| | 953 |
| | 725 |
|
| 1 |
| | 2,398 |
| Accrued liabilities | | 10,086 |
| | 8,917 |
| | 3,973 |
|
| 1,606 |
| | 24,582 |
| Deferred income tax liability | | — |
| | 108,132 |
| | (471 | ) | | — |
| | 107,661 |
| Operating lease liabilities - noncurrent | | 17,271 |
| | 233 |
| | — |
| | 235 |
| | 17,739 |
| Other noncurrent liabilities | | 3,155 |
| | — |
| | 2,700 |
|
| — |
| | 5,855 |
| Total liabilities assumed | | $ | 31,231 |
| | $ | 118,235 |
| | $ | 6,927 |
| | $ | 1,842 |
| | $ | 158,235 |
| Net assets acquired | | $ | 769,117 |
| | $ | 553,656 |
| | $ | 90,148 |
| | $ | 109,920 |
| | $ | 1,522,841 |
| | | | | | | | | | | | Less: cash acquired | | $ | — |
| | $ | (2,363 | ) | | $ | — |
| | $ | — |
| | $ | (2,363 | ) | Less: fair value of existing ownership | | — |
| | — |
| | (12,995 | ) | | — |
| | (12,995 | ) | Cash paid for acquisitions | | $ | 769,117 |
| | $ | 551,293 |
| | $ | 77,153 |
| | $ | 109,920 |
| | $ | 1,507,483 |
|
The fair value of the assets and liabilities identified in the table above are based on preliminary valuations. As such, our estimates are subject to change as additional information is obtained about the facts and circumstances that existed as of the acquisition dates. The purchase price allocation of each acquisition remains under evaluation as of the end of the third quarter of 2019. The primary areas which are being assessed relate to the fair value of intangible assets and working capital adjustments with some of the respective sellers.
Retransmission agreement intangible assets are amortized over periods of between five and six years while network affiliation agreements are amortized over 15 years. Other intangible assets primarily represent the fair value of distribution agreements held by Justice and Quest which will be amortized over a period of seven years. The weighted average amortization periods for each of the Recent Acquisitions are currently estimated to be: Nexstar Stations (10.8 years), Dispatch Stations (10.8 years), Justice and Quest (6.9 years) and Gray Stations (11.1 years).
Goodwill is calculated as the excess of the purchase price over the net fair value of the assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from the acquisition that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate. The goodwill, the FCC licenses and other intangible assets recognized from the Nexstar Stations, Justice & Quest and Gray Stations transactions are expected to be substantially all deductible for tax purposes. Goodwill and all other intangible assets from the Dispatch Stations are not expected to be tax deductible.
Our Consolidated Statements of Income for the quarter and nine months ended September 30, 2019 include the results of the Recent Acquisitions since their respective acquisition dates as shown in the table below (in thousands): | | | | | | | | | | Quarter ended | | Nine months ended | | | | | Revenue | $ | 45,867 |
| | $ | 65,308 |
| Operating Income | $ | 5,486 |
| | $ | 7,696 |
|
Acquisition-related costs incurred in connection with the Recent Acquisitions for the quarter and nine months ended September 30, 2019 were $20.0 million and $29.1 million, respectively, which have been recorded in the Corporate - General and administrative expenses, line item within the Consolidated Statements of Income.
Unaudited Supplemental Pro Forma Financial Information The following table sets forth certain pro forma financial information for the quarter and nine-months ended September 30, 2019 and 2018 giving effect to the Recent Acquisitions as if they were all completed on January 1, 2018 (in thousands):
| | | | | | | | | | | | | | | | | | Quarter ended Sept. 30, | | | | 2019 | | 2018 | | 2019 | | 2018 | Revenue | $ | 605,908 |
| | $ | 644,893 |
|
| $ | 1,841,373 |
|
| $ | 1,865,893 |
| Net income | $ | 42,277 |
| | $ | 97,290 |
|
| $ | 185,528 |
|
| $ | 234,626 |
|
Information for the acquisitions has been presented on a consolidated basis as the information is not material individually for any of the acquisitions. The unaudited historical results have been adjusted for business combination accounting effects, including depreciation and amortization charges from acquired intangible assets, interest on the new debt and related tax effects. The pro forma results are not necessarily indicative of what our results would have been had we completed the acquisitions on January 1, 2018, nor are they reflective of our expected results of operations for any future periods. For example, revenues and net income amounts below do not include any adjustments for expected synergies.
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