Media General Investor Pushes For Nexstar

Starboard Value, one of the largest shareholders of Media General, with approximately 4.5% of the outstanding shares, today told Media General that its pending $2.4 billion acquisition of Meredith does not make strategic or financial sense for shareholders and that it should instead consider the merger proposed by Nexstar.

In an open letter to Media General Chairman Stewart Bryan and CEO Vincent Sadusky, Jeffrey Smith and Peter Feld, managing members of Starboard Value, said they had “serious concern” over Media General’s apparent refusal to “negotiate a superior transaction with Nexstar prior to finalizing the questionable Meredith transaction.”

The Nexstar reference is to yesterday’s news that Nexstar has offered $4.1 billion for Media General. That’s $14.50 in cash and stock, a 30% premium over Friday’s closing price, plus assumption of debt.

“As demonstrated by the 10.5% decline in Media General’s stock price in the five trading days following the announcement of the Meredith transaction, shareholders were clearly surprised and dismayed by the transaction.Upon review, Smith and Feld said. “It is not difficult to see why. Effectively, Media General agreed to pay a significant premium to acquire a larger company with a less desirable business mix and then hand over management control to the target’s management team.

“This type of transaction structure is unconventional, at best, and upon closer investigation, appears to be contrary to the best interests of your shareholders.”

“Further exacerbating the issue is the fact that the proposed Meredith transaction seems to be a step backwards in strategy for Media General. Media General chose to exit the low-growth and low-margin newspaper business in 2012 and indicated to its shareholders at that time that the Company would remain focused on growing its broadcast business going forward. However, the Meredith transaction, if consummated, would bring Media General back into the publishing business given that approximately 66% of Meredith’s revenue is generated from its publishing business while only approximately 34% of Meredith’s revenue is generated from its broadcast business.”

Smith and Feld said they were surprised to learn that Nexstar had previously made a private proposal to acquire Media General but that management and the board had refused to engage in discussions.

“The Wall Street Journal reported yesterday that Nexstar’s private proposal, which was submitted on Aug. 10, 2015, was valued at $17 per share, which would have represented a 23% premium to the then current share price of Media General. It is concerning to us, and we imagine to just about all of your shareholders as well, that management and the board of Media General would refuse the opportunity to negotiate a potential value-maximizing transaction with Nexstar and instead proceed to expeditiously execute such an unconventional, value-destructive acquisition.

“We believe a combination of Nexstar and Media General is highly strategic. Nexstar management has a proven track record of execution and has created substantial value for its shareholders over the past five years. In addition, we believe Nexstar’s estimated synergies of $75 million appear conservative with significant upside making any stock component of a transaction particularly attractive. 

“It is clear to us, and should be clear to the board, that the Nexstar proposal is reasonably expected to lead to a superior proposal, as required under the Meredith merger agreement in order for Media General to enter into a confidentiality agreement and negotiate a transaction with a third party bidder. The board should waste no time in making this determination so that discussions and due diligence with Nexstar can begin expeditiously. “

Finally, Smith and Feld wrote: “We hope that no further action beyond this letter will be needed, but are prepared to take whatever actions we deem necessary to ensure that the best interests of Media General shareholders are of paramount importance.“ That includes, it said, nominating “an alternative slate of directors and seek[ing] their election at the next annual meeting.”