Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Gray Television update call for investors. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. Hilton Howell, Chairman, President, and CEO of Gray Television, you may begin your conference.
Thank you so very much. Good morning, everyone, and thank you for joining us on this red-letter, momentous day. Thank you for joining this investor conference call to discuss this morning's announcements that Gray and Raycom Media have agreed to combine our fine companies. I'm happily joined today by Raycom's President and CEO, Pat LaPlatney. I am also joined by Gray's Chief Legal and Development Officer, Kevin Latek, and Gray's Chief Financial Officer, Jim Ryan, as well as our Chief Operating Officer, Bob Smith, and our new Chief Administrative Officer, Nick Waller. We do want to make this call as productive as possible. Therefore, Pat and I will make some general comments, and then we'll move quickly to take your questions. We will begin now with the disclaimer that Kevin will provide.
Thank you, Hilton. Good morning, everyone. Certain matters discussed on this call may include forward-looking statements regarding, among other things, the pending acquisition of Raycom that we have announced today and our expected future financial condition and operating results. Those statements are subject to a number of risks and uncertainties. Our actual results could differ materially from those described in the forward-looking statements as a result of various important factors. Such factors are described in the company's reports filed with the SEC, including today's press release. The company undertakes no obligation to update these forward-looking statements. We urge you to review the Form 8-K we filed with the SEC today pertaining to this transaction, as it contains important information and detail, including an investor presentation. Gray also uses its website as a key source of company information. The website address is www.gray.tv.
A copy of the investor presentation has been posted to our website. Included on the call will be a discussion of non-GAAP financial measures, in particular broadcast cash flow, broadcast cash flow less cash corporate expenses, operating cash flow, free cash flow, and certain leverage ratios. These metrics are not meant to replace GAAP measurements but are used by management and provided as supplements to assist in the analysis and valuation of our company. Include reconciliations of the non-GAAP financial measures to the GAAP measures in our financial information that is available on our website. Now I return the call to Hilton.
Thank you, Kevin. By now, you have all seen and read this morning's announcement that the very exciting news that Gray Television has reached an agreement to combine with Raycom Media. As most of you know, Raycom is the owner of a simply fantastic portfolio of high-quality television stations, digital platforms, and related news and media businesses. Gray and Raycom together are simply a perfect fit. Indeed, we believe that Gray and Raycom have very complementary corporate cultures. I am therefore personally and professionally delighted that Pat LaPlatney will join our Gray board and will become our President and Co-chief Executive Officer upon the closing of this transaction. In terms of the transaction itself, we expect that it will be immediately accretive to Gray's Free Cash Flow per share.
Quite simply, we could not be more excited about this transformational combination with Raycom, including the impact of all other pending acquisitions by both companies and prior to any required divestitures. The combined company will have 142 full-power television stations serving 92 markets. This collection of stations would rank today as the third-largest portfolio of those stations and markets in the country. We are very excited that the transaction will bring Gray into larger markets such as Cleveland, Charlotte, and Sarasota. Overall, our combined high-quality station portfolios will reach 24% of the U.S. television households. The phrase high quality is truly the right description here because our companies combined have 62 television stations ranked first in all-day Nielsen ratings in their local markets. This figure represents the highest number of top-ranked local television stations owned by any broadcaster.
Moreover, fully 92% of our combined markets have the number 1 or the number 2 Nielsen-rated local television station. In total, Gray and Raycom broadcast nearly 400 separate program streams, including approximately 165 affiliates of ABC, NBC, CBS, and FOX, and over 100 affiliates of The CW, MyNetwork, and MeTV networks. We are very excited about all the new opportunities that this transaction will present for our employees, our news offerings, our advertisers, our investors, for all of our stakeholders. Frankly, we cannot wait to get started. Most importantly, for each of those 92 markets, we believe that this transaction will serve as a recommitment and a redoubling of our commitment to localism and local news.
To that end, we have devised what we believe is a realistic approach to any potential regulatory issues presented by the transaction. Today, Wells Fargo will begin an expeditious process to find qualified new owners for the television stations in the nine overlap markets that we will be divesting. Just as importantly, over the coming months, we will be working closely with Raycom's management, including and especially Pat LaPlatney, to ensure the smooth transition and integration of our companies. For these reasons, we anticipate being able to close the transaction in the fourth quarter of this year. This has simply been one of the smoothest and friendliest negotiations that Gray has ever experienced. I wish to extend our sincere thanks to Pat and his fine team of colleagues for their constructive, tireless, and engaging work on this transaction.
On behalf of our board of directors and all of our shareholders, I especially need to thank the small team within Gray that has been quietly devoting nearly all their waking hours on this transaction over the past few weeks, while also somehow going about their day-to-day jobs without missing a beat. In particular, I would like to recognize Jim Ryan and Kevin Latek for leading our efforts on this momentous, transformative transaction. I ask all the Gray shareholders to welcome me in welcoming the wonderful people of Raycom Media to our growing corporate family. At this time, I will turn the call over to Pat for some remarks. After his remarks, we will open the line for questions for Pat, Kevin, Jim, Nick, or Bob. Go ahead.
Thanks, Hilton. Good morning. As most of you know, Raycom is an employee-owned company based in Montgomery, Alabama. We believe that while our large broadcast peers crave the one company that best mirrors Raycom in terms of quality local television stations, cutting-edge digital technology platforms, and commitments to journalistic excellence and community service. We also agree that Gray and Raycom have very complementary corporate cultures. Board of directors of Raycom and my colleagues and I are therefore genuinely excited to bind our great company with Gray Television. We realize that many of you may not know Raycom, as a private company, owns several non-broadcast media businesses. We believe these non-broadcast businesses will make the combined company more diversified and better poised for growth. These businesses include Raycom Sports out of Charlotte, North Carolina, a marketing, production, events management, and distribution company.
Tupelo Raycom, a sports and entertainment production company. RTM Productions, an automotive programming production and marketing solutions company, and Broadview Media, a post-production and digital signage company. Raycom also owns Community Newspaper Holdings, Inc., which owns community papers and information products in over 100 markets, including over 100 titles located in 23 states. In addition, Raycom owns PureCars, a SaaS platform for the automotive industry. Raycom has initiated processes to sell or spin off both CNHI and PureCars to third parties. As a result, Gray will not acquire either CNHI or PureCars. Hilton said this is one of the smoothest and friendliest transactions Gray has experienced. I could not agree more. Sincere thanks to Hilton, Kevin Latek, Jim Ryan, and the management team at Gray for their professionalism, respect, and commitment throughout this process.
The more we've learned about each other's culture, it only confirms that this is the right fit at the right time. We share the same core values of journalistic excellence, creative and strategic advertiser solutions, and community service. We're genuinely proud to be joining the Gray family. I also want to thank the senior management team at Raycom for their very long days and dedication on this transaction for growing Raycom into the powerful local media company that it is today. Raycom employees have done an extraordinary job in serving their communities. Going forward, that will not change. Together, as part of Gray, we'll be a stronger, more impactful force in the broadcast industry. Thanks for your time. Now I'll turn the call back to Hilton.
Thank you, Pat. At this time, we'll open up the line for any questions.
At this time, I'd like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of John Janedis from Jefferies. Go ahead, please. Your line is open.
Oh, hi. Thank you, guys. Maybe two for me. First, can you talk a little bit more about path to close? Meaning, it feels like deals have generally taken longer to close than expected. What's your confidence around the six-month timeline? Separately, can you talk a little bit more about the political advertising opportunity? I think on the Gray side, you've averaged about 45% more dollars over the past two cycles on a smaller revenue base. Has Raycom tended to be in fewer swing states, or does that present an opportunity for Gray going forward? Thanks.
Hey, John, Kevin Latek. I'll hit the first question first. This transaction does not seek any waivers of FCC ownership rules, period. We have overlaps in nine markets. While we believe we could obtain approvals from the government to keep some of those and create new duopolies, we have decided, and decided very early on with Raycom, that we would instead move immediately to divest an overlap station in each overlap market. Wells Fargo is beginning, as Hilton said on his remarks, they're beginning already this morning to reach out to potential buyers. We will have an expedited process. You may recall with Schurz, we started and finished the divestiture process in 30 days. We are targeting a pretty aggressive period here. We expect to be at the government in the middle of August with investors lined up. Again, we're not seeking any waivers.
On the national ownership cap, we've mentioned that the company combined today would reach 24% of the U.S. That is without the UHF discount. With the discount, we would be even lower. Let's assume there's no UHF discount.
This transaction complies with every version of the FCC's cap on a national audience reach going back to 1985. Back then, the cap was 25%. There were three television networks in the analog world, and Facebook's Mark Zuckerberg celebrated his first birthday. We think this is the cleanest possible transaction that we could present to the FCC and DOJ, and we're doing that on purpose. I would say we said fourth quarter without wiggle room in the press release because we feel very comfortable and confident we'll be able to achieve what we need from not just the government, but our other major partners like the network, to move forward. I think both of our companies really present a compelling transaction for our network partners as well. We do think this is going to be a quick path to closing this year.
On the second question on political, there's a lot of overlap geographically. Together, our portfolio is a hand in glove. We have some stations in states where they have some stations. When we look at our political layout, we are only going into two states that we're not already in, Hawaii and Arizona. Every other state in which Raycom operates, Gray is already there. We're just simply getting deeper into those states. Louisiana, for example, we have two strong stations. They have several strong stations. We have four stations in Texas. They have a half dozen stations in Texas. Florida, Mississippi, the Carolinas, Tennessee, Virginia, you name it. This is a hand-in-glove portfolio, and that's really why when we thought about Raycom, and you all have asked about Raycom over the last couple of years, we've always said this would be the dream transaction.
This would create the best portfolio of number one TV stations. From a political advertiser standpoint, I think this is the best portfolio in the states in which we operate.
All right. Thanks, Kevin.
Your next question comes from the line of Marci Ryvicker from Wells Fargo. Go ahead, please. Your line is open.
Thank you. Congratulations, Kevin. I now know why you were not at the conference last week, congratulations.
You got it. You got it, Marci.
I have a lot of questions. I'm going to start, first of all, do you have coverage with the UHF discount for the pro forma company?
Marci, I apologize. I don't. I'm going to guess it's less than 20%, got to be somewhere between 15% and 20%.
Then you mentioned Free Cash Flow accretion in year one. Is there any sort of quantification you can give us by percentage or cents per share or anything?
Marci, this is Jim. Let me walk you through that as a big picture, because I think we actually put out some good disclosures that if everybody takes and then works with their models, they'll see that the Free Cash Flow accretion is truly very substantial. The cash component of the overall price is $2.85 billion. We have a financing commitment from Wells Fargo for $2.525 billion, and as of March 31, on the balance sheets of both companies, there was about $540 million of cash. In both companies, in the way the deal is structured, the Free Cash Flow build will be available at closing to be applied against the amount of debt we actually borrow.
If you think about Free Cash Flow build over the rest of the year, as well as the divestiture markets. We said the divestitures were about 4% of the overall combined company's cash flow. We gave the combined cash flow on page 5 of the investor presentation that we published this morning. That is $782 million. That implies divestiture markets are low $30 million in cash flow. You can put an appropriate multiple on that. There will be ample cash generated between now and closing. We said closing leverage of about 5 times net all cash.
If you parse the numbers carefully together, assume that the 2016, 2017 cash flow that we published is at least a little bit better at 2017, 2018, I think you could get us to a zip code of debt at closing somewhere between all-in debt at closing, not including the preferred, I will get to that in a minute, but debt at closing of $3.8 billion-$3.9 billion. You are probably at a good zip code. Again, based on the information we gave, I think you can develop a pretty good OCF range that clearly suggests that it is in the mid to upper $700 million on a combined basis. The outflows on a combined company are pretty straightforward. The $650 million of preferred is an 8% coupon. That is a perpetual preferred. It is plain vanilla. It has an 8% coupon.
We can take it if we want at 8.5%. It has no redemption date. It is callable any time in whole or in part at our sole discretion. We are delighted with the terms on that preferred. The dividends there are $52 million a year. Our interest expense all combined, since we are financing this on a senior secured basis. Our interest expense at Gray run rate was about $95 million a year in cash. You can put an appropriate amount of new Term Loan B on it. You can see that the interest expense for the combined company is somewhere in the low $200 million. Cash taxes will be relatively small and mostly associated with states over the next several years. One of the attractive assets we are acquiring with Raycom is a large NOL, which we will have use of, subject to normal Section 382 limitations.
We think the NOL for us is shielding somewhere around $40 million of cash taxes for the next several years. If you want to think about cash taxes over the next 2 years, it is probably averaging on a 2-year basis around $45 million. Obviously, the 2020 political year would be higher than the 2019 non-political year. You end up with a Free Cash number. This would be before any required amortization on the term loan. That would be de minimis. It would be the usual 1%. A Free Cash Flow number prior to debt amortization on a term loan in the mid to upper $300 million. Everybody can do their own math on what that means per share. The combined company will have 100.3 million shares outstanding.
Any way you do this math, it is just very accretive to free cash and Free Cash Flow per share.
Great. Thank you so much for the detail. I'm just going to ask one more and then you guys can move on. Can you talk about maybe the retrans and reverse comp situation at Raycom, maybe when subs come up for each one, if you have that?
Marci, it's Kevin. First, on your prior question, while Jim was talking, I do have the UHF discount reach at 17%. I think you're asking on retrans, were you asking retrans about our date when the subs come up?
Yeah. I guess, how does it differ, Raycom's timing versus your timing?
Yeah, Marci, we have after-acquired clauses, so any operator that has a contract with Gray today will have the Raycom stations fall into them. Our schedule does not change. The sub percentages will, just by virtue of the footprint. The dates of our 400-ish contracts are not changing. We've not gone back and done the recalcs yet on the subs. I expect it'll change somewhat, but we will continue to have the same contracts we had before closing, we'll have after closing.
Okay. That's it for me. Thank you so much.
Thank you, Marci.
Your next question comes from the line of Kyle Evans from Stephens. Go ahead, please. Your line is open.
Hey, good morning.
Hey, Kyle.
Hey, good morning. How are you?
Very good.
Good. Maybe some commentary on Raycom's core trends, maybe last few years, and then a look at first half 2018 so we can kind of comp them against yours.
This is Pat LaPlatney. It's essentially the same as Gray. We talked a little bit about political, and I would just add that those two states that Kevin mentioned that we're adding here are both pretty strong political states, Arizona and Hawaii. Our trends mirror those of Gray.
Got it.
Yeah.
Could you roughly size, you guys highlighted four businesses that are maybe not comparable to Gray's existing business, the Raycom Sports, Tupelo, RTM, Broadview. Could you roughly size those?
Sure. Those four companies in aggregate would be, in terms of cash flow, mid-teens.
Okay.
We expect them to grow, though, relatively quickly over the next few years.
Great. Maybe lastly, similarities and differences in terms of the digital strategies between the two companies?
I think there are a lot of similarities. We operate in markets that are mostly midsize and smaller, there's good compatibility there. I think it's not going to be any significant adjustments on either side.
No significant difference in approach to, say, Cleveland or Charlotte than, say, North Platte?
Yeah. Look, it's a little more competitive probably in Cleveland and Charlotte than it is in North Platte, but the products are really fairly similar.
Great. Thank you.
Thank you, Kyle.
Your next question comes from the line of Leo Kulp from RBC Capital Markets. Go ahead, please. Your line is open.
Thanks. Good morning. Congrats on the deal.
Thanks.
Just a quick question. This deal is pretty transformative for Gray. How is it going to change your strategy going forward in terms of the markets you look at and how you view yourself as a company?
I don't think it's going to change our strategy at all. I think that we continue to look at local stations that have a news commitment to local journalism
That is what we will continue to be able to do. One of the really stunning and remarkable things about this transformative deal with Raycom is the company that Pat leads is just so similar in corporate culture and belief systems and commitments to community. One of the things that I absolutely love about what Raycom does, I mentioned this, we had a general manager's call for all of Gray's GMs so that they were familiar with it, and I mentioned it to them. When the hurricanes and storms hit in Louisiana, and they have such a large footprint there, Pat asked me if our stations would participate in a concert with all kinds of different musical talent to raise funds for the victims. To me, that's what a local TV station group does.
We were thrilled to participate with him, but I'm even prouder of what he did and the idea and the thought behind that kind of commitment to communities. That's what we're looking for. This deal spreads us broadly throughout the country. It does add, on the political side, a great deal more heft in some very important political swing states for the presidential year, whether that's Virginia, North Carolina, South Carolina. We actually added another station, really our third in Iowa. In many different ways, we pick up more clout and cover states from one end, from some of the smallest markets to the largest markets. We make money in all of them. We serve all of them well, and we're proud of that.
Got it. Thank you for the color, and congratulations.
Thank you. We're thrilled.
Your next question comes from the line of Dan Kurnos from The Benchmark Company. Go ahead, please. Your line is open.
Great. Thanks. Good morning. Hilton, just to touch on that a little bit deeper, since you guys did mention potential swaps in the divestiture process. I think because you own ones and twos and haven't been unwilling to either part with them or acquire lesser quality stations, I don't know if acquiring Raycom changes your stance on your participation in the swap market with the understanding that you guys have clearly gotten benefit in some of your smaller markets with duopolies. If you could address that and then maybe on the OTT side, now that you guys are moving up market and have a chance to participate in some of the markets where OTT is already established, if you could just talk about Raycom's existing OTT footprint and how that will play out with your thoughts down the road on that front.
This is Kevin, if I may. When we did the Schurz transaction, we also said that we were going to divest and strongly prefer to do swaps. We, in fact, did do swaps there. Obviously, we got a lot of opportunities there, and we chose the best fit. We're certainly open to that again and would prefer it. You're right, we're not interested in trading down in terms of quality. We like the stations we have. Obviously, what Raycom has and to state the obvious, the crown jewel of Raycom are the employees of Raycom. We will look for swaps that might help our heft in places. Our priority here certainly is an expeditious process, and getting to the divestiture finish line is very important to us.
In terms of OTT, we've signed with almost every provider, and Raycom is very similar profile with the OTT guys. They have certainly launched the first markets early. We've got, I think we mentioned on the last earnings call, we have seen a significantly larger number of OTT subs at the end of the year than I expected. We're continuing to roll out. Since our earnings call, we've continued to see another, I don't know, maybe 15 or 20 markets get launched. They're certainly moving down market. Raycom's going to probably launch before us because they're in larger markets. I don't see any particularly-- there's not really a difference in philosophy at all. That, let me ask Pat to actually address Raycom.
I'll just echo what Kevin said. We've launched in. We do have some top 50 markets, so those are launched. I guess I would add that we're also, Raycom's looked at outside of the traditional sort of network affiliate partnership. We have some products that we're working on in the OTT space outside the traditional sort of linear broadcast. We announced last week that we have a product called InvestigateTV focused on investigative journalism that Gray will be a great partner in that. We have some very high-profile partners there, including ProPublica and the Cronkite School at Arizona State. We're working on some lifestyle programming on OTT and a few other things. It's not just the linear signal or the traditional network relationship. We're kind of branching out in other areas there as well.
Can we just, and that's a good segue because I just wanted to touch on the content side of it. Obviously, a lot of your peers have been more aggressive in either acquiring content, whether it's cable nets or developing their O&O programming. From a Raycom Gray combination here, it sounds like more content creation is on the cards going forward?
Raycom has been in the original programming business a bit. I think Gray is not, and part of that has been scale. We will have new scale, obviously, here. Original programming is something that starts to look a little more interesting when you have a 24% footprint, as does everything else. From national sales to political sales, we will have scale that at this point, only a couple other folks have. We're looking at all kinds of things from sales, programming, news, to really take advantage of the new scale we're going to have. There's no announcement today on any specific new programs or program strategies.
Got it. All right, thanks, guys, and congratulations.
Thank you.
Your next question comes from the line of Davis Hebert from Wells Fargo. Go ahead, please. Your line is open.
Good morning, everyone. Thanks for taking the questions and congrats on the deal. Wanted to ask a few balance sheet questions. Jim, the press release said around five times by the end of 2018 based on two-year average EBITDA. I wonder if you could talk about the deleveraging pathway, given the asset sales plan, Free Cash Flow you mentioned, do you have that balanced with the redeemable preferred?
Yeah. As we think about it over the next couple of years, clearly, about five times the levered net cash through the debt at close. We've already talked a little bit about the Free Cash generation. With that Free Cash, we would be looking to pay down the senior debt pretty rapidly over the next couple of years. I would see leverage going well into the fours by the end of 2019, and you would be down into the threes comfortably by the end of 2020. We can de-lever very rapidly. The preferred stock given its nature and its very favorable terms to the company, because again, that's plain vanilla perpetual preferred. It has no conversion rights into equity. It is what it is. We would see that right now as a long-term piece of our structure.
It is being issued to participants in the Raycom capital structure now. We view them as long-term, patient money, long-term investment horizons. We're looking to that right now as a long-term piece of paper.
Okay. Thank you. That's helpful. The makeup of the financing, I think you said all Term Loan B, just wanted to confirm that.
Yeah.
Have you had any conversations or thoughts around the credit ratings impact of that?
Just to confirm again, yes, the additional financing would be new Term Loan B. All of the existing Gray Term Loan and the existing Gray bonds will remain in place, and we will, with the new Term Loan B, be refinancing all of the debt at Raycom. We have briefed both rating agencies. They are aware of the transaction.
Okay. Excellent. Raycom being privately owned for quite some time, Gray being public, I wonder if you could talk about the difference in cost structures. I know retrans is probably part of the synergies, but maybe if you could discuss operationally how you're planning to attack the integration there.
You start, Kevin.
Yeah. This is Kevin. Whenever you put two big companies together, there's a lot of duplication, and there are other opportunities that, as I mentioned earlier, you can't take advantage of on your own. Yes, retrans is part of the math here, but we've been pretty deliberate, and I think realistic as we have in the prior transactions, to look on a very granular basis as to what we think is achievable in the near term. Actual decisions, we clearly haven't made. I think the cost structure comment is, I think both companies are run pretty lean. We've seen a lot of diligence out there and a lot of transactions where you can't say that. That's also, again, part of the appeal of Raycom and Gray is that we think the companies are run very similarly.
I don't know that there's much more to talk about the cost structure outside of we're going to have a much bigger company, and we'll need to add some resources in some places, but there's other resources we don't need to duplicate.
Okay, just one housekeeping item on the cash flow side. Jim, I'm not sure if you mentioned what the combined CapEx would be.
Thank you. I don't think I did. Thanks for bringing that up. Our run rate the last few years on Gray has been about $45 million on average, and the Raycom run rate over the same period of time is a little, maybe a touch lower. As we think about it, you're low side, maybe $80. Big political year and a lot of projects, maybe $100. Again, I think that's being very, very generous in those numbers and leaves you leeway to adapt to conditions as we go forward.
Even if you use that generous assumption, like I said, you can run the free cash numbers and it's still highly Free Cash Flow accretive.
Okay, last question from me. This does take your Fox exposure up a bit, and just wondered if you could talk about your comfort level with the Fox relationship going forward.
Yeah. It does take our Fox, this is Pat LaPlatney, by the way, it does take our Fox exposure up a bit, but we're absolutely comfortable with that. Actually, two of our largest markets are very strong Fox affiliates in Birmingham and New Orleans, we're comfortable going forward.
Great. Thank you.
Your next question comes from the line of Jim Goss from Barrington Research. Go ahead, please. Your line is open.
All right, thanks much, and congratulations. I was curious about the organizational structure somewhat. When you combine the two, do you have to create regions or by size? How exactly do you approach that?
Jim, this is Kevin. We currently have stations that are overseen by regional managers at both Gray and Raycom. How that plays out down the road, no one knows at this point, honestly. We already have such a big platform in both companies that it's not practical to have the GMs directly reporting to the CEO. We're just too big. The regional structure that we have in place, and frankly, our peers have in place, is probably the one that will continue going forward.
Okay. Just a little bit more on the programming that Raycom has in starting with sports. Is there a way to extend that into the Gray markets, or is that one of the situations where it's really locally oriented and that won't do?
There are some opportunities. One of the companies we own is RTM, which does automotive enthusiast programming. They have roughly a 900-hour library, and some of that archive airs on the Raycom stations, and that would be available for the Gray stations. We do a lot of live sports production. Our clients are NBC, and Fox, and ESPN. Most of that content wouldn't be available at the stations, but there are some live events that we can do for Gray and Raycom stations. Some opportunities going forward for both companies there.
Okay. When you look at M&A, I would assume this satisfies M&A appetite for a while, or does it actually position you on a bigger scale so that given that you still have a lot of upside to any reach limitations, that you have a desire to look beyond and expand further?
James, this is Jim. I think as we look out over the next couple of years, our main objective is going to be to focus on delivering everything we've been talking about, and bringing down the debt level and the leverage level. There could be maybe a little puck in here and there that's not going to move the needle, that made sense on a market basis. We don't expect anything large for the next couple of years. We need to execute on what we're undertaking starting today, and that's the basic intention, and we get a couple of years down the road, then we can look at the landscape and make appropriate choices then.
Okay. One final thought. It seems like one of the risks you had had in terms of making acquisitions that would get you into bigger markets where you couldn't maintain the political share that Gray's traditionally done, and this seems to be largely expanding your footprint without diluting the political share advantage you've traditionally held. That seems like a big plus.
We agree with you completely. We think it's actually going to enhance our political revenue per share by coming together and having a larger platform where we are must-buy stations in many very competitive states.
Okay. Well, that sounds great. Congratulations. Thanks.
Your next question comes from the line of Mario Gabelli from GAMCO Investors. Go ahead, please. Your line is open.
Yeah, I have to listen to some calls on Campbell Soup, I may repeat myself. Are you buying a C-corp or a partnership? Hello?
Yeah, Mario, Raycom Media is a C-corp.
All right. The NOL that you talked about in Section 382 is an NOL carry-forward at a C-corp, not a step-up of assets. Got it.
Yeah.
Just to refresh on Raycom, did they sell a lot of spectrum in the last spectrum auction, or did they not participate?
No.
What?
Raycom sold spectrum in one market, actually, and Raycom's partner station, partner group actually didn't sell.
I got it. No, that's good.
moved it in one market.
All right, you have a lot of that. The third part is you talked about Raycom's anticipated 2018, 2019. I'm assuming you use cash flow of 7.8x blended. I'm assuming you're expecting a 20%-30% drop-off in 2019 in terms of EBITDA versus cash flow versus 2018, or did you ever give that percentage on a prior comment?
We said if you run through all the math and look at it on a blended two-year average, which is the full cycle. You're going to come up with a combined company cash flow somewhere in the mid to upper $300 million.
I'm just looking at, seeing if I got a number for 2019 dropping off over 2018, and then looking at the surge in 2020. Well done. I'll move along, and we're delighted. Take care.
Thank you, Mario.
Thanks.
Thanks for your support in the past, listen, thank you for personally being on the call today. I appreciate it.
You bet. Well, it's an interesting dynamic. Always good to see companies scale up as opposed to those that are still trying to figure it out. Take care.
Thank you, Mario. I may quote you on that.
Again, as a reminder, if you'd like to ask a question, please press star followed by the number 1 on your telephone keypad. Your next question comes from the line of Dennis Leibowitz from Act II Partners . Go ahead, please. Your line is open.
Historical table 12 and divide your average Free Cash Flow by the 100.3 million shares, you'd get like $1.95 in Free Cash Flow per share on average. Does that take into account everything Jim was talking about, including the divestitures? Am I correct in assuming that since that 2016, 2017, that the figures would be higher going forward?
Dennis, I didn't quite follow your starting point.
I just took the figures you gave for 2016, 2017 Free Cash Flow in the table on page 12 and divided by 100.3 million shares.
Page 12 of what?
Your deck here, combined historical basis. Oh, I'm sorry, that's just Gray.
That's Gray prior to this transaction, it sounds like. You're talking about our old, what is our investor deck that got published a couple of weeks ago.
I see. Okay.
Again, to go back to the bigger question, if you do all the math on Free Cash Flow, and there's enough information in what we've published that I think all the pieces are there, and I had run through the bigger numbers a little earlier in the call. You're going to come up with a Free Cash number, or you should be able to come up to a Free Cash number somewhere in the mid to upper $300s, and then you can divide that by 100.3 million shares pro forma for this transaction.
Okay. That isn't much different than this. The second last question is, when you raised equity a while ago, I think you've said, not publicly necessarily, that you expected to do a deal from a private seller, and it fell through. Is this the same deal?
No. When we raised equity, we did not have a specific deal in mind. When we raised equity in December, we said we thought opportunities would come our way, whether that was a series of smaller transactions, of mid-size. We had said repeatedly for a year and a half that we'd be open to something more transformative. It was way past December. It was actually late spring, when this transaction really, the conversation started, and we have been moving very rapidly for the last couple of months to get to this day.
Hey, this is Kevin. We also had on the radar screen at that time, when we raised equity, an interest in some of the number 1 and number 2 TV stations that would be spun off from the Sinclair Tribune process that we thought was going to be moving forward around that timeframe. Obviously, we did not participate in the stations that eventually were offered there. We're very actually, in retrospect, thrilled with the way that worked out because it allowed us to move forward here. Just to echo Jim's comment, since Memorial Day, when this all got going, the last couple of weeks have been kind of a blur for all of us. Thanks, Pat and the team, for giving up their vacations, their holidays, their weekends, and their children to spend the last three weeks with us.
Okay. Thank you.
There are no further questions in queue at this time. I turn the call back over to Mr. Howell.
Thank you very much, operator. First, I want to thank everyone for being with us this morning. Second, quite sincerely, I want to welcome the Raycom employees around the country. Gray Television treasures the employees that it has, and you're going to be a treasure in this company. It's one of the reasons we're doing this deal. I'd also like to note that we're bringing together two first-class portfolios of stations, and together we create a portfolio and a footprint of number one stations in markets that are incredibly complementary. We are not overlapping, but we are coming together as two complementary portfolios. Next, with this combination, we also become a much more appealing buy for advertisers because we are able to offer them a broader footprint across a terrific selection of geographies and demographics. We compete better and can grow our advertising revenue.
The programming we do produce, while we provide tremendous autonomy to our stations, will give them the ability to tell the stories they want to tell and the autonomy that they need, which is a hallmark of our company. At the same time we do that, we're able to capitalize on opportunities to share content where it's appropriate and where our local stations find it valuable and relevant to their local community that will create value for our new company. Finally, digital. As we all continue to evolve and innovate and drive our digital initiatives across a broader platform, we can combine our expertise, our technology, and accelerate the progress that we're making in digital across a much broader platform. Thank you for being here, and we look forward to talking to you again soon. Thank you, operator.
This concludes today's conference. You may now disconnect.