Suitors vying for Tegna's TV stations can't keep them all

March 13 (Reuters) - The race to acquire U.S. TV station operator Tegna Inc hinges not just on the price suitors are willing to pay, but also on how much they may give up in terms of assets to win regulatory approval, people familiar with the matter said.

Peer Gray Television Inc, private equity firm Apollo Global Management Inc and media mogul Byron Allen have submitted competing offers for Tegna, valuing it at $8.5 billion, including debt, according to people familiar with the matter.

Apollo and Allen have each offered $20 per share in cash for Tegna, while Gray has also made a $20-per-share bid, but with a small portion of it to be funded with its own shares as currency, rather than all-cash, the sources said.

As the bidding war rages and the suitors revise their offers, the outcome will also be determined by the ability of the successful acquirer to divest some TV stations, the sources said. All three bidders own TV stations that regulators would require to be divested because of the potential overlap, the sources added.

The U.S. Federal Communications Commission (FCC) does not allow any operator to own more than one of the top four stations in a regional media market. Moreover, a company is not allowed to own stations that in their totality reach more than 39% of all U.S. TV households.

Tegna runs 62 television stations, most of which are in bigger markets like Houston and Washington D.C., while Gray operates in 93 markets. They would overlap in 18 markets, where they would need divestitures, according to the sources.

Analysts at Wells Fargo estimate the two companies together will reach around 42% of TV households, in breach of the FCC cap, making divestitures mandatory. The value of the TV stations Gray would have to divest could reach $3 billion, according to the sources.

Tegna and Gray declined to comment.

Last year, Apollo built its portfolio by acquiring stations from Nexstar Media Group Inc for more than $1 billion and 14 regional TV stations from Cox Enterprises Inc in a $3 billion deal.

While a combination with Tegna would not breach the FCC cap, it would mean some divestitures in six major markets where there is overlap with Apollo-owned stations, including in Atlanta and Jacksonville, the sources said. The stations divested would have a value of up to $1 billion, according to one of the sources.

Apollo declined to comment.

Byron Allen, who acquired the Weather Channel TV network for $300 million in 2018, needs to divest only one station in a deal with Tegna, given that his Allen Media group so far only owns 15 stations in smaller markets, the sources said. In the past six months, he has spent about $500 million acquiring TV stations from USA Television and Bayou City Broadcasting.

Allen said last month he wants to invest up to $10 billion to build another national TV group empire. While he has been working with partners to raise financing for his bid for Tegna, it is not clear where all the funding would come from, the sources said.

While the sector is benefiting from increased political advertising ahead of November’s U.S. presidential election, TV advertising budgets have been in decline as media consumption shifts to the internet and online streaming. Nationwide, TV station groups are consolidating to gain more negotiating power with TV networks for distribution. (Reporting by Krystal Hu in New York; Editing by Tom Brown)