Meredith Corp. Left at the Altar Again
January 27 2016 - 11:30AM
Dow Jones News
For the second time in three years, Meredith Corp. is left
without a dance partner.
Meredith on Wednesday agreed to let Media General Inc. abandon
its $2.4 billion merger agreement, capping a five-month drama that
hit turbulence as soon as Nexstar Broadcasting Group Inc. publicly
made a bid for Media General in late September. For Meredith, the
deal with Media General would have created a larger, more
competitive business—bolstering its local television stations
across the U.S. and reducing its exposure to the magazine business.
Instead, Nexstar will walk away with Media General.
It isn't the first time Meredith shareholders have been left
empty-handed. In early 2013, Meredith was involved in extensive
talks to create a new company by combining most of Time Warner
Inc.'s magazine group with Meredith's magazine portfolio that
includes titles like Family Circle and Better Homes and Gardens.
However, that deal eventually unraveled, and Time Warner instead
decided to spin off Time Inc. into a separate, publicly traded
company.
This time, Meredith is walking away with a $60 million breakup
fee—not the heftier payment they were said to be pushing for in
order to agree to let Media General terminate their deal, but a
cash consolation nonetheless. Meredith also gained the right to
negotiate for the purchase of some Media General assets. The
question is what will the more-than-century-old company do now?
With its shares down 25% in the last year, Meredith could use
the cash windfall to buy back more stock and increase its dividend
that pays out $1.83 a share annually, according to a person
familiar with the company's thinking. As of Wednesday morning,
Meredith shares were up 2.1% to $39.72, giving the company a market
value of about $1.8 billion.
"We entered into this potential transaction opportunistically
and from a position of strength as a very successful stand-alone
company," said Stephen Lacy, Meredith's chief executive, via email.
"While we worked hard to close the merger, we worked just as hard
over the last year—and last several years for that matter—to create
a strong Meredith Corporation."
From an operational standpoint, Meredith is left with its 17
local TV stations that reach 11% of U.S. households and a portfolio
of magazines such as Parents and Eating Well. It is one of the few
U.S. media companies that have chosen to keep its TV and publishing
assets under one roof.
Media conglomerates including Time Warner, Tribune, News Corp.
(owner of The Wall Street Journal), Washington Post Co. and Scripps
separated off print assets in recent years that had become less
profitable as readers and advertisers migrated online. Even Gannett
Co. last year spun off its publishing business and renamed its
broadcasting and digital-media business Tegna Inc.
Meredith, on the other hand, has maintained an interest in
publishing, even adding titles like Shape and Martha Stewart
brands.
The fact that Meredith hadn't separated its broadcast and print
properties was clearly an issue in the deal with Media General,
which had sold off its newspapers in 2012, according to Carl Salas,
an analyst at Moody's Investors Service.
"One of the concerns was that Media General had earlier exited
the publishing business, and with the Meredith deal they would be
bringing it back," Mr. Salas said.
In fact, Nexstar CEO Perry Sook made that same point during his
efforts to break up the Meredith-Media General deal. In a September
letter to Media General, he said the proposed combination with
Meredith "exposes Media General once again to the publishing
business" and creates a company with an earnings mix "with
significant exposure toward publishing."
Peter Kreisky, a media consultant, said that Meredith will now
be under greater pressure to find a new path forward.
"They need greater scale. The question is should they be
acquired or acquire more companies," said Mr. Kreisky. "There is
little real fit between print and local television stations.
Perhaps spinning out the television group would generate additional
value."
A successful deal with Media General would have boosted
Meredith's broadcasting footprint to 88 local TV stations reaching
39% of U.S. households. For broadcasters like Meredith, scale
increasingly matters when negotiating for the lucrative
retransmission fees that cable companies pay to carry their
signals.
"Meredith has got some great top 20 stations, but what they need
to do is find some new partnerships and create scale," said Mr.
Salas of Moody's. "Larger broadcasters with bigger footprints will
be better positioned in the future."
Write to Jeffrey A. Trachtenberg at
jeffrey.trachtenberg@wsj.com
(END) Dow Jones Newswires
January 27, 2016 11:15 ET (16:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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