Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Meredith Corp. is the odd man out in more ways than one.

The $1.8 billion publishing company and television broadcaster was forced to walk away last month from a planned merger with Media General after Nexstar Broadcasting muscled in with a better offer for the TV-station owner. Broadcasters have become increasingly obsessed with scale and the stronger bargaining power that comes with it, and that made Meredith's magazine division -- which makes up the bulk of its revenue -- a liability.

This brings us to a possible plan B: Separating Meredith's two businesses. The company's CEO Stephen Lacy actually  told Bloomberg TV this week that he's thought about a breakup.

Better late than never?

Tuned Out
After months of M&A back-and-forth, Meredith has been left with a sluggish stock and questions about its next move.
Source: Bloomberg

Meredith is one of the few (and maybe the only) big media holdouts that have kept print and broadcasting under the same roof. This union, once the standard for the industry, has fallen by the wayside as print circulation and advertising revenue tumbled, creating a drag on the faster-growing video businesses. Time Warner, 21st Century Fox and E.W. Scripps are just a few of the media companies that have decided to separate out their magazine or newspaper businesses.

With that kind of momentum, it may just be a matter of time before Meredith goes down the same path. Lacy, the CEO, told Bloomberg TV he would want to do a split in conjunction with a deal to help flesh out one of the businesses. The most obvious candidate for some new additions is the broadcasting division, which had about $530 million in revenue in fiscal 2015, compared with the $1.3 billion Media General is projected to report for 2015. 

In exchange for agreeing to scrap the Media General merger, Meredith got $60 million and the right to a first look at some of Media General's broadcast and digital assets that may be divested to get approval for the Nexstar deal. Meredith has said it's ready to pounce on other takeover opportunities that become available once the quiet period connected to the Federal Communications Commission's auction of airwave rights ends in the fall. 

Aftereffects
Tegna's stock hasn't fared well since separating from its newspaper business.
Source: Bloomberg

The recent selloff in media stocks amid concerns about cord-cutting has put a black cloud over some of the recent TV-publishing splits. Gannett acquired broadcaster Belo Corp. in 2013 and then spun off its newspaper business. The surviving TV company -- now named Tegna -- has dropped more than 20 percent since the June breakup. E.W. Scripps has slipped about 30 percent since it combined with Journal Communications and separated out the merged company's newspaper business in April. 

But it's not like things are much better on Meredith's lonely side of the split divide. The company's stock is down about 25 percent in the last year, outpacing the declines for most of its pure-play broadcast peers.  

Meredith is valued at about 8 times its projected Ebitda for fiscal 2016, which ends in June. That compares with a median multiple of about 11 for similar-sized U.S. broadcasters that don't have big publishing businesses.

Sooner or later Meredith will have to join the herd.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net