LIN Media Investor Sues to Challenge Media General Buyout

LIN Media LLC (LIN) directors structured Media General Inc. (MEG)’s $1.6 billion buyout of the local TV-station operator in a way that unfairly benefits private-equity firm HM Capital Partners LLC over other shareholders, a pension fund claimed in a lawsuit.

Most LIN investors are slated to receive stock or cash valued at $27.82 a share. HM Capital, which has a partner on LIN’s board and controls shares with 70 percent of the company’s voting rights, can get cash for its entire stake, the International Union of Operating Engineers Local 132 said.

“By allowing HMC to accrue this benefit for itself to the exclusion of other stockholders, the board violated fiduciary duties to all LIN Media stockholders,” the West Virginia-based pension fund said in the complaint filed today in Delaware Chancery Court in Wilmington.

Media General’s move to acquire the 43 local television stations owned by LIN, based in Providence, Rhode Island, is part of a push by U.S. media companies to take advantage of climbing fees from cable providers. The buyout, valued at $2.6 billion when LIN’s $968 million in debt is included, is among more than $10 billion in U.S. TV acquisitions in the past year by companies such as Tribune Co. and Gannett (GCI) Co.

Hearing Sought

The pension fund is asking a judge to block the Media General deal so long as HM Capital can receive different consideration than other LIN shareholders. LIN directors didn’t disclose in securities filings or the release announcing the buyout that Dallas-based HM Capital may receive all cash, according to the complaint.

“HMC has the option to receive cash for 100 percent of its shares, while the rest of the stockholder base is told it can receive cash for about 50 percent of its shares, but will in fact only receive cash for only about 20 percent of its shares,” the pension fund said.

Courtney Guertin, a LIN spokeswoman, didn’t immediately return a voice-mail message seeking comment on the lawsuit.

LIN directors structured the buyout to make it difficult for other bidders to make an offer, according to the pension fund. Those directors include John Muse, an HM Capital partner, and other LIN board members also have ties to the firm, the pension fund said.

The deal allows LIN to respond to inquiries from other bidders until April 25. If another company makes a qualifying, superior offer by May 15, the bidder would have to pay a $26.6 million breakup fee.

Winding Down

HM Capital, previously known as Hicks, Muse, Tate & Furst, is winding down operations and looking to liquidate its holdings, the fund alleges in the suit.

Thomas O. Hicks, the firm’s ex-chairman, was the majority owner of Major League Baseball’s Texas Rangers when the club sought bankruptcy protection in 2010. The team ultimately was sold for $593 million to a group including Hall of Fame pitcher Nolan Ryan. The fund changed its name to HM Capital after Hicks left the company.

When the LIN acquisition is complete, Richmond, Virginia-based Media General will have a total of 74 local stations across the U.S., reaching 26.5 million, or 23 percent, of the country’s households, the companies said. LIN Chief Executive Officer Vincent Sadusky will lead the combined company.

The case is International Union of Operating Engineers Local 132 v. LIN Media LLC, CA No. 9538, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Dawn McCarty in Wilmington at dmccarty@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Stephen Farr, Charles Carter

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