- Amended Agreement Would Include Enhanced Dividend, Higher Synergies and Less Debt
Targeted to Close by June 30, 2016, Offering Shareholders Access to Benefits Sooner than Nexstar Proposal
Meredith Reiterates its Rights Under Current Merger Agreement, Including Shareholder Vote Provision
Meredith Corporation (NYSE:MDP); said today it has proposed an amendment to the terms of its merger agreement with Media General, Inc. (NYSE: MEG); 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 $20 per 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 of approximately $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.
www.meredith.com
