Media General says they have a deal with Nexstar, while Meredith issues new proposal
Media General looks to terminate agreement with Meredith, while the publisher of Better Homes and Gardens counters with its own proposal to keep the Media General deal alive
The Meredith-Media General deal officially died today when Media General announced that it completed a deal with Nexstar Broadcasting Group, the broadcast company that came in with a counter bid for Media General shortly after the Meredith deal was announced. Or maybe not.
“We are pleased to have negotiated these transaction terms with Media General as we believe the combination would be a transformational event that enables both companies’ shareholders to participate in the near- and long-term upside of a pure-play broadcasting company with expanded audience reach, a more diversified portfolio and a significantly stronger financial profile, led by a proven broadcast and digital media management team,” Perry Sook, Chairman, President and CEO of Nexstar, said in that company’s announcement.
For Meredith, left at the alter, things are not so bad, they stand to get a $60 million break-up fee for their troubles. But Stephen M. Lacy, Meredith’s CEO, will not become the new CEO and President of Meredith Media General, after all.
So, it is all over, right?
Well, not really, there is a bit of dancing that needs to occur for all this to reach the finish line.
Here is the relevant paragraph from Media General’s announcement today:
Under the terms of the Company’s agreement with Meredith Corporation, Media General may not enter into an agreement with Nexstar unless and until the Meredith Agreement has been terminated. Accordingly, Media General made several proposals to Meredith to terminate the Meredith Agreement, and to date, Meredith has been unwilling to accept these offers. In the event Meredith does not agree to terminate the Meredith Agreement, Media General intends to hold a meeting of its shareholders to vote on the Meredith transaction as soon as possible as required under the terms of the Meredith Agreement. If the Meredith transaction is not approved by Media General shareholders at that meeting, Media General would be permitted to terminate its agreement with Meredith and enter into a merger agreement with Nexstar.
Meredith has issued their own press release stating that they have made a new proposal, one that they value at “more than $20 per share in near-term value.” The problem, looking at the proposal at a glance, is that Meredith’s deal involves $3.90 per share in cash, while the Nexstar deal involves $10.55 per share in cash – so all the rest of the money involves the two company’s stock.
It is hard for me to know whether Media General and Nexstar truly have a deal (though it looks that way), and whether Meredith really is just fighting it or just going through the motions. Guess we’ll know soon enough. In the meantime, Meredith has announced that it has cancelled its plans to appear at the Citi 2016 Internet, Media & Telecommunications Conference today.
Here is Media General’s announcement, followed by Meredith’s press release below that:
RICHMOND, Va. – January 7, 2016 — Media General, Inc. today confirmed that it has completed the negotiation of terms for a transaction under which Nexstar Broadcasting Group, Inc. would acquire Media General. Key terms of the negotiated transaction include that Media General shareholders would receive, for each Media General share:
- $10.55 per share in cash;
- 0.1249 of a share of Nexstar Class A common stock for each Media General share; and
- A contingent value right (“CVR”) for each Media General share entitling Media General shareholders to net cash proceeds as received from the sale of Media General’s spectrum in the FCC’s upcoming spectrum auction, adjusted as described below.
As of closing prices on January 6, 2016, the negotiated transaction reflects a value of $17.66 per share plus the value of the CVR. Upon close of the transaction, former Media General shareholders would hold approximately 33.4% of Nexstar’s outstanding shares.
Under the terms of Media General’s negotiated transaction with Nexstar, the proceeds that CVR holders would receive would be adjusted to account for the benefit that would accrue to former Media General shareholders, as post-transaction shareholders of Nexstar, from any net cash proceeds that Nexstar will receive from the sale of its spectrum in the auction. Media General estimates that its spectrum assets could potentially be worth up to $4.29 in after-tax value per share, before the netting mechanism associated with the CVR in the negotiated Nexstar transaction.
Excluding Media General’s estimated value of its spectrum assets, the negotiated transaction with Nexstar values Media General at approximately 10.7x the Company’s 2014/2015 average-annual adjusted EBITDA (based on Wall Street equity research estimates). Including the estimated after-tax value of Media General’s spectrum assets, the negotiated transaction values Media General at up to 12.0x the Company’s 2014/2015 average-annual adjusted EBITDA (based on Wall Street equity research estimates).
In addition, under the terms of the negotiated transaction, Nexstar would agree to divest the TV stations necessary to obtain FCC regulatory approval. A transaction would not be subject to any financing condition. Two Media General directors would join the Nexstar Board of Directors at closing.
Because the Meredith-Media General merger agreement has not been terminated, there can be no assurance that any transaction with Nexstar will result (or the terms or timing thereof).
Under the terms of the Company’s agreement with Meredith Corporation (MDP) (the “Meredith Agreement”), Media General may not enter into an agreement with Nexstar unless and until the Meredith Agreement has been terminated. Accordingly, Media General made several proposals to Meredith to terminate the Meredith Agreement, and to date, Meredith has been unwilling to accept these offers. In the event Meredith does not agree to terminate the Meredith Agreement, Media General intends to hold a meeting of its shareholders to vote on the Meredith transaction as soon as possible as required under the terms of the Meredith Agreement. If the Meredith transaction is not approved by Media General shareholders at that meeting, Media General would be permitted to terminate its agreement with Meredith and enter into a merger agreement with Nexstar.
As previously announced on September 8, 2015, Media General entered into a definitive merger agreement with Meredith, under which Media General will acquire all of the outstanding common stock of Meredith in a cash and stock transaction. The Board of Directors of Media General continues to recommend the proposed transaction with Meredith.
Separately, Media General noted that it plans to file its applications to participate in the FCC Broadcast Incentive Auction, which commences on January 12, 2016.
RBC Capital Markets, LLC and Goldman, Sachs & Co. are acting as financial advisors to Media General and Fried, Frank, Harris, Shriver & Jacobson LLP and Weil, Gotshal & Manges LLP are acting as its legal counsel.
DES MOINES, Iowa – January 7, 2016 — Meredith Corporation said today it has proposed an amendment to the terms of its merger agreement with Media General, Inc. to create a powerful new multiplatform and diversified media company to be known as Meredith Media General.
The amended agreement offers Media General shareholders more than $20per share in near-term value including:
- $3.90 per share in cash at closing for total cash proceeds of approximately $510 million
- One share of 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
- A contingent value right (CVR) representing after-tax net cash proceeds from the sale of Media General’s spectrum in the FCC’s upcoming spectrum auction. Media General estimates that its spectrum assets could potentially be worth up to $4.29 per share in after-tax value.
In addition, the new Meredith Media General would pay an annual dividend starting at $0.68 per share.
Meredith’s proposal to Media General – which would amend the terms of the agreement announced on September 8th, 2015 – would create a “Merger of Equals.” Media General shareholders would own 50.2 percent and Meredith shareholders, who would receive 2.8244 shares of Meredith Media General for each share of Meredith, would own 49.8 percent, of the fully-diluted shares of Meredith Media General. Meredith shareholders would receive $14.95 per Meredith share in cash at closing for total cash proceeds of approximately $685 million.
“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 Chairman and CEO Stephen M. 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.”
The Merger of Equals proposal is extremely compelling from a financial standpoint to shareholders. It would feature:
- A sharp focus on total shareholder return including a cash distribution to the shareholders of both companies, and an attractive ongoing annual dividend that’s expected to yield 4 percent or greater.
- Higher verified annual synergies of $85 million, with a target of $100 million.
- A more conservative leverage profile, expected to be approximately 4.7x initially, and decreasing rapidly over the subsequent 18 months.
- Capacity to participate in future, accretive M&A in the television sector and in the digital arena.
- An alignment of interests offering shareholders of both companies a balanced opportunity to participate in the future success of the new Meredith Media General.
Importantly, Meredith and Media General will continue along the current regulatory approval timeline, with a targeted closing date by June 30, 2016, pending successful completion of overlap station divestitures. That process is well underway, as are many of the regulatory filings and joint integration initiatives.
Meredith and Media General have filed a joint proxy statement that is currently in the Securities and Exchange Commission’s (SEC) review process. Once SEC approval is received, shareholders of both companies must then be granted the required time to review the proxy statement. Under this timeline, a shareholder vote would take place sometime in February 2016 or after.
Given the above, we believe:
- Nexstar and Media General will not be able to enter into a merger agreement and file their applications before the commencement of the Federal Communications Commission’s (FCC) ‘quiet period’ related to the digital spectrum auction, which starts on January 12, 2016.
- Under FCC rules, Nexstar may either have to forgo Media General’s participation in the auction; wait to consummate the merger until after the auction concludes; or pursue a restructuring that could have adverse regulatory and financial consequences. The auction is expected to last at least six to nine months.
- Thus, a Nexstar-Media General combination could not be completed for at least a year, if not longer, significantly delaying any financial benefit to Media General shareholders, and exposing the transaction to potential market and industry risks.
- Additionally, Nexstar and Media General would need to comply with FCC and Department of Justice regulations, including divesting of stations in seven overlapping lower-tier markets, plus potential further divestitures to comply with the 39 percent national television ownership cap.
- Conversely, the Meredith Media General transaction could close and be through several quarters of integration and return of capital to shareholders.
At the same time, Lacy reiterated that Meredith intends to uphold its rights under the current merger agreement with Media General to ensure shareholders of both companies have an opportunity to realize the value that a Meredith-Media General combination would create. Meredith’s rights under the terms of its current binding merger agreement include:
- The opportunity to review – and propose an alternative – to any potential agreement Media General might reach with a third party.
- The right to have Meredith and Media General shareholders vote on the merger agreement. Media General cannot enter into any merger agreement with a third party until after a shareholder vote takes place, unless Meredith waives its right to hold a vote, agrees to terminate the current merger agreement, and accepts a termination fee.
Lacy noted that Meredith’s September 8th binding agreement to merge with Media General remains in place with fully-committed financing of $2.8 billion; the companies are making significant progress on achieving key regulatory approvals needed to complete that transaction by June 30, 2016; and joint integration work has already identified additional synergies.
“Meredith’s Board of Directors still unanimously agrees that the September 8th 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.”
The new Meredith Media General would be a diversified, multiplatform media company with a strong financial position, unmatched content creation capabilities, deep consumer insights and data, and expansive reach. Its compelling attributes would include:
- A powerful competitor in the media industry with $3 billion in revenues, over $920 million of EBITDA, and at least $1 billion in pro-forma cumulative free cash flow in the first two calendar years post-closing.
- At least $85 million of verified synergies, which could climb even higher as the two companies move forward with integration activities.
- More than 80 television stations across 54 markets that reach 34 million U.S. TV households. These high-quality local broadcast assets will include 25 Big Four network-affiliated TV stations in Top 50 DMAs, making Meredith Media General the largest owner of Big Four stations in Top 50 markets.
- A powerful digital platform reaching more than 200 million monthly unique visitors via a combination of leading national and local consumer sites and business-to-business digital capabilities in key growth sectors such as content, mobile, social, video and native advertising.
- Leading multiplatform national media brands with a top female reach of 100 million unduplicated American women and over 60 percent of U.S. Millennial women across multiple platforms including print, digital, mobile, video and brand licensing. It will also possess a profitable marketing services business.
The new Meredith Media General would also be positioned for long-term growth in the media industry:
- Meredith Media General’s 30 percent TV household reach provides for further expansion in the television space, as it is well below the government-mandated 39 percent ownership cap.
- Meredith Media General will possess a powerful digital business with projected first-year revenues ofapproximately $500 million and tremendous growth potential. Meredith has an established and profitable digital business and is well-positioned to maximize opportunities inherent in Media General’s current digital activities.
- Meredith Media General will build on Meredith’s success in generating revenues not dependent on advertising via its high-margin brand licensing and its nationally recognized and profitable marketing services businesses.