Note 3 - Acquisitions

3 Months Ended

Mar. 31, 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 complete 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. 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”). Gray intends to finance the transaction, net of divestiture proceeds, with cash on hand and/or new debt. We have obtained a debt financing commitment under our 2019 Senior Credit Facility to finance up to the full purchase price of $925 million.

The completion of the Quincy Transaction is subject to the satisfaction or waiver of certain customary conditions, including, among others: (i) the receipt of approval from the FCC and the expiration or early termination of the waiting period applicable to the transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and (ii) the absence of certain legal impediments to the consummation of the Quincy Transaction. Either party may terminate the Quincy purchase agreement if the Quincy Transaction is not consummated on or before January 31, 2022, with an automatic extension to May 1, 2022 if necessary to obtain regulatory approval under the circumstances specified in the Quincy purchase agreement. The purchase agreement includes a provision that we must pay a termination fee of $25 million if the purchase agreement is terminated as a result of a failure to satisfy certain regulatory approvals.

On April 29, 2021, we entered into an agreement with Allen Media Broadcasting, LLC to divest Quincy’s television stations in the seven markets in which we currently operate, for $380 million in cash, in order to facilitate regulatory approvals for the Quincy Transaction. We expect to close the Quincy Transaction and related divestitures concurrently following receipt of regulatory and other approvals, in the third quarter of 2021.