Meredith-Media General deal looks like it will go to a vote of shareholders
Nexstar reiterates commitment to acquire Media General as Meredith rejects offer to terminate deal
The soap opera that is the Meredith-Media General deal will finally come to a close when Media General shareholders meet to vote. The first thing they will have to do to approve the Nexstar merger is vote down the Meredith deal, then finally approve the Nexstar deal. That vote, should if happen, would trigger a break-up fee for Meredith.
To date, Media General has been negotiating with Meredith to end their merger deal, offering (if reports are accurate), $60 million and the option to buy two of its stations at market prices. The problem with that is that Meredith’s break-up fee is already $60 million, so add in the stations “at market prices” – sounds like a way to not actually pay Meredith the $60 million, but simply hand them two stations. Meredith, instead, made a counter proposal to try to keep the Media General deal alive, or at least make it seem like they want to keep it alive.
In the meantime, Nexstar released a press release today, criticizing Meredith and “reiterating” its commitment to the Media General deal. It makes interesting reading, so is reproduced below.
One thing to keep in mind regarding this deal: Meredith last year reported magazine revenue at 295.8M, while local TV revenue came in at 130.1M. Both represented growth over the prior year. But magazine revenue was actually at the same level as 2013, and only really grew thanks to its deal to take on the Martha Stewart magazines. In other words, while print remains what Meredith is mostly known for (especially in the magazine business) its broadcast may be the most attractive side of the business. This is why it was thought that the new Meredith-Media General company, had the deal gone through, might have spun-off its print magazines. Now that it looks like the deal might not go through, it is still possible that their may be a spin-off of print, or else a complete sell-off of the broadcast properties.
IRVING, Texas – January 11, 2016 — Nexstar Broadcasting Group, Inc. today reiterated its commitment to acquire Media General, Inc. and to take all necessary actions to consummate a transaction that is clearly in the best interests of both Media General and Nexstar shareholders.
Perry Sook, Chairman, President and CEO of Nexstar, said, “We remain fully committed to acquiring Media General and with the support of its Board of Directors and shareholders expect to consummate a transaction expeditiously. Despite Meredith Corporation’s attempt to recast its proposed combination with Media General as a merger of equals, it is clear that Media General favors a transaction with Nexstar and shares our commitment to seeing it to fruition. As described by Media General in its most recent S-4 filing, Meredith’s proposed no-premium merger of equals transaction is ‘not competitive with Media General’s proposed transaction construct with Nexstar.’
“While Meredith’s continuing refusal to terminate its agreement is misguided, it will not prevent Nexstar from continuing to pursue its fully negotiated transaction with Media General. In fact, based on inquiry with the Federal Communications Commission (“FCC”), we believe the commission will continue to process applications during the spectrum auction, with the approval in ordinary course allowing for closing of approved transactions upon the FCC’s release of the Auction Results Public Notice or shortly thereafter.
“Should the Meredith management and Board persist in taking its acquisition by Media General to a vote of Media General shareholders — which is expected to occur within the next 60 days — it will certainly be voted down. The fact that Meredith sought to change its transaction terms is a clear admission that our proposal is superior. We intend to take any steps that may be necessary to allow us to consummate our agreed transaction with Media General. We have already reached agreement with Media General on the terms of a transaction, filed a form of merger agreement with the SEC, and have finalized terms with banks ready to provide approximately $4.7 billion in financing in support of the transaction. We expect to quickly sign a definitive agreement with Media General as soon as Media General shareholders vote down the transaction with Meredith (or earlier if a settlement is reached between Media General and Meredith to terminate their merger agreement).
“Our transaction provides a significant premium to Media General’s shareholders, including a cash component of $10.55, and allows Nexstar and Media General 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. Nexstar management’s commitment to its shareholders and value creation is reflected both by our personal ownership and record of appreciation over the last five years. During this period Nexstar delivered equity returns of more than 785% compared with Meredith management’s approximate 30% return which lagged key indexes including the S&P 500 which rose 50% over this period. More recently, Nexstar delivered an 8% return over the last year compared to Meredith which lost more than 19% of its value, again underperforming its peer group and major indexes. Reflecting this data we are confident that Media General shareholders will choose Nexstar’s offer as superior to Meredith’s proposal.
“Nexstar’s acquisition of Media General will be an extraordinarily powerful combination that creates the nation’s second largest operator of television properties with a strong focus on localism. Our increased scale will allow advertisers and brands to benefit from a more comprehensive, integrated and competitive offering across all markets. Financially, this transaction will enable us to further broaden our revenue base, diversify our cash flow and generate over $500 million of annual free cash flow, equating to approximately $10.50 per share of average free cash flow per year over the 2015/2016 period, which will enhance long-term shareholder returns and would be allocated for leverage reduction, additional strategic investments and the return of capital to shareholders. In contrast, the Meredith proposal would again expose Media General shareholders to the challenged publishing business with approximately 54% of the acquired net EBITDA in the Meredith transaction coming from publishing. We encourage Media General shareholders to continue to voice their opposition to the transaction with Meredith in advance of the special meeting.”
As previously announced, Nexstar and Media General have completed the negotiation of terms under which Nexstar would acquire Media General for $10.55 per share in cash and 0.1249 of a share of Nexstar Class A common stock for each Media General share. In addition, the terms contemplate additional consideration to Media General shareholders in the form of 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. Also as previously announced, the negotiated transaction would not be subject to any financing condition; Nexstar intends to divest the TV stations necessary to obtain FCC regulatory approval of the proposed transaction; and, 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 Media General will result (or the terms or timing thereof).
BofA Merrill Lynch is acting as financial advisor and Kirkland & Ellis LLP is acting as legal counsel to Nexstar in connection with the proposed transaction.