Meredith, Nexstar Fight Over Media General

After nearly three months of financial maneuvering and deal making, Media General has become the target for two competing bidders.

Just minutes after Nexstar announced early this morning that it had “completed the negotiation” to acquire Media General for $17.66 a share in cash and stock, Meredith Corp. countered with a “merger of equals” in which Media General shareholders would receive $18.84 in cash and stock in the combined company.

Nexstar’s bid comprises $10.55 in cash and 0.1249 of a share of Nexstar stock for each share of Media General based on the yesterday’s closing price of Nexstar shares.

Meredith’s counter to Media General shareholders:

• $3.90 in cash, which totals approximately $510 million.

• One share of the merged companies — Meredith Media General — for each share of Media General, “representing an implied pro-forma equity value of $14.94 per share, based on a normalized trading multiple of 9.0x EBITDA.”

Meredith further sweetened its deal by promising shareholders a 68 cent annual dividend.

Both offers would entitle Media General shareholders proceeds from any spectrum that Media General sells in the FCC’s upcoming spectrum incentive auction.

Meredith said the spectrum could be worth up to $4.29 per share after taxes.

Also part of the deal, Meredith shareholders would receive 2.8244 shares in the combined company plus $14.95 in cash for each of their Meredith shares. The cash component totals around $685 million.

When all is said and done, Media General shareholders would end up owning 50.2% of the combined company while Meredith shareholders would own 49.8%.

In a note to clients, the analysts at Wells Fargo were betting on Nexstar prevailing. “It also sounds like MEG [Media General] favors the newly proposed NXST [Nexstar] transaction over MDP’s [Meredith’s],” they said.

In its press release, Meredith argued its case. “We’re confident that the combination of Meredith and Media General will generate superior value over both the near- and long-term, particularly when compared to the unsolicited offer Nexstar Broadcasting Group has made for Media General,” said Meredith CEO Stephen Lacy.

“Given the compelling and superior value inherent in this proposal, we ask that the Media General Board of Directors re-enter serious negotiations around the Merger of Equals structure and its merits.” 

Media General had cut a deal to combine with Meredith last September. But after analysts and major shareholders cried that the Media General shareholders were being short-changed, Nexstar moved in, uninvited, with a bid to acquire Media General for $14.50 a share.

Media General summarily rejected Nexstar’s initial offer, but was essentially forced by the unhappy shareholders to negotiate with Nexstar to see if they could agree on a price. An extra $2.16 did the trick.

Meredith called its deal “extremely compelling.” In addition to the annual dividend, it said its deal would produce at least $85 million in annual synergies, “a more conservative leverage profile” (4.7X decreasing rapidly over the first 18 months) and capacity to make more digital and broadcasting acquisitions.

What’s more, it said, its deal would adhere to the regulatory approval process that began last September, meaning the deal could close by the end of June.

“Meredith’s board of directors still unanimously agrees that the Sept. 8 merger agreement reached with Media General is in the best interests of shareholders,” said Lacy. “Enhancing Meredith shareholder value will remain our top priority as we move forward in this merger process.”

Lacy is, incidentally, fighting for his job. Under terms of the September Media General-Meredith deal, he would become CEO of the new Media General, bumping aside the current CEO, Vince Sadusky.

Nexstar conceded that it could not go forward with its deal until its merger agreement with Meredith is terminated by either parties or until the Media General shareholders formally reject it by a shareholder vote.

With Meredith digging in, the Wells Fargo analysts anticipate that it will go to a vote next month. “[I]f shareholders vote it down, MDP would receive a $60 [million] breakup fee,” they noted.

Nexstar CEO Perry Sook said his deal makes the most sense for Media General shareholders. “Specifically, the combined company would be highly attractive to programmers and advertisers alike, while the anticipated year-one synergies of $76 million and generation of over $500 million of annual free cash flow will enhance long-term shareholder returns,” he said.

Nexstar also noted that it intends to divest the TV stations necessary to obtain FCC regulatory approval of the proposed transaction. In addition, two Media General directors would join the Nexstar board of directors at closing.

The negotiated transaction would not be subject to any financing condition. Nexstar has worked with banks willing to provide commitment letters for approximately $4.7 billion in financing in support of the transaction as soon as the negotiated merger agreement is executed.