Nexstar Offers $4.1 Billion For Media General

Perry Sook thinks he has a better deal for the shareholders of Media General.

Rather than buying Meredith, the CEO of Nexstar Broadcasting believes it should be selling to him.

To that end, Nexstar announced this morning that it is offering $4.1 billion for Media General (which includes assumption of debt). That’s $14.50 in cash and stock, a 30% premium over Friday’s closing price, plus assumption of debt.

With management’s support, Sook said, Nexstar could have a definitive merger agreement on the table in 20 days.

Two hours after Nexstar floated its bid, Media General responded by saying it would “carefully review and consider” it, while cautioning shareholders to “take no action at this time.”

In an open letter addressed to Media General Chairman Stewart Bryan and CEO Vince Sadusky, but aimed primarily at the company shareholders, Sook said he was surprised that Bryan and Stewart “summarily rejected” Nexstar’s bid to buy the company at a substantial premium on Aug. 10, just two weeks before they announced the $2.4 billion deal to buy Meredith.

The combination of Nexstar and Media General makes far more sense, Sook said. “The combined company’s significantly expanded audience reach and portfolio diversification would be highly attractive to programmers and advertisers alike, and its enhanced operating and financial scale would position it for near- and long-term success in an environment of ongoing industry consolidation.”

“Pro-forma for synergies,” he continued, “the combination would generate in excess of $450 million of annual free cash flow (averaged over two-year cycles), which would be allocated for continued investment in the business and for deleveraging and other initiatives that enhance long-term shareholder returns.”

By contrast, the Meredith deal is “value destructive.”

“The ill-conceived Meredith transaction,  which caused an immediate drop in Media General’s stock price and criticism from a number of your investors and analysts, exposes Media General once again to the publishing business and creates a pro-forma EBITDA mix with significant exposure to publishing. Were you to engage with us, we believe you could deliver significantly more value to your shareholders.”

Sook said his deal would result in greater scale and less regulatory impact.

“Together, Nexstar and Media General would be the No. 2 owner of major network affiliates and a pure-play broadcast operator that owns, operates, programs or provides sales and other services to 162 stations in 99 markets, reaching 39% of all U.S. television households.

“We would be an enhanced retransmission partner, have available potential additional spectrum for upcoming auctions and deliver greater opportunities for disciplined expansion in digital media and other complementary operating areas. In addition, we would be able to deliver more quality local programming and content for our collective broadcast and digital operations.”

To appease regulators, Sook said, Nexstar and Media General would have to spin off around the same number of stations as Media General would to acquire Meredith, but the stations would be in smaller markets. As a result, they would have less impact on the bottom line.

“Based on our estimates, the combined Media General/Meredith would be required to divest approximately 37% of the acquired broadcast EBITDA, compared to only 7% in the case of a Nexstar/Media General combination.”

During a conference call with analysts this morning,Sook said that Nexstar August proposal was not his first run at Media General. “We felt all along it was a compelling combination.”

Sook said he discussed a merger “in general terms” with the Media General board and management last March. “We at that point were ambivalent. We could be a buyer, we could be a seller — whatever creates the most value for our shareholders is what would govern our behavior.”

But, he said, there was “no engagement” by them.

On the call, reps of large Nexstar and Media General shareholders endorsed Nexstar’s play. “We think this deal makes a lot of sense,” said Greg Spiegel, SVP, Neuberger Berman. “We think it’s a superior proposal, in the best interest of both companies’ shareholders. And our hope is that Media General’s board engages with you as soon as possible.”

The sentiment was seconded by Lance Vitanza, managing director of CRT Capital Group. “From my perspective, this looks like a great deal for Nexstar’s shareholders. It certainly seems like a better deal for Media General shareholders relative to Meredith.”

Here are the slides that Nexstar used to pitch the deal in its conference call.