Unhooking Cable May Perk Up Media General

Media General is a major newspaper publisher, but lately the stock is being driven by its cable-TV operations. The price dropped to 22 in May, down from 28 in February, when the Street suddenly lost its ardor for the cable group. But Media General has since rebounded to 28. What's firing it up?

Some big investors are betting the company will soon be forced to spin off its cable business, estimated to be worth about $700 million, or $27 a share. These pros argue that Media General is much undervalued: In addition to cable properties, it owns several broadcast-TV stations and a sheaf of newspapers.

The intrinsic value of all its assets, including cable properties, is $65 to $80 a share, according to investor Mario Gabelli. His companies--GAMCO Investors and Gabelli Funds--recently increased their stake in Media General to more than 30%, up from 25% in 1992.

Gabelli says investors have been frustrated and disappointed ever since they supported management six years ago against raiders Burt Sugarman and Harold Simmons, who had launched a hostile takeover bid. Shares were then trading at 30. People close to Gabelli say he's eager to force management to spin off cable operations. They note that demand for cable assets has resurged, judging from recent deals done by Southwestern Bell and U S West. A "real consolidation" in cable is happening, says Salvatore Muoio, an analyst for Gabelli, "and the appetite for cable systems is definitely on the rise."

HOT PROPERTY. Media analyst Kendrick Noble recalls that Media General's cable holdings were what attracted raiders back in the 1980s. Says analyst Paul Sweeney of Wheat First Butcher Singer: "Media General's cable operations in the prime Washington (D.C.) area are among the best in the country, period." He has upgraded his rating from "hold" to "buy" since ad revenues and earnings have ramped up.

But even if Media General holds on to its cable, "the stock is still a good buy," says Sweeney. Media General owns four cable systems, with more than 200,000 subscribers. The company's broadcast operations include an NBC affiliate in Tampa and two ABC affiliates--in Charleston, S.C., and Jacksonville, Fla. In print, Media General has daily and Sunday newspapers in Tampa, Richmond, Va., and Winston-Salem, N.C., plus 14 weekly and twice-a-week papers in Florida. The company is also a major newsprint recycler.

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