What Meredith Gains by Linking Up With Media General: Real M&A

  • TV deal is timed right for 2016 campaign ads in swing states
  • Media General seeks scale, investors still aren't thrilled

Local television stations are merging just in time for their quadrennial windfall: the U.S. presidential race.

Media General Inc. is buying Meredith Corp. for $3.1 billion, including net debt, to create the third-largest local broadcaster, with 88 stations mostly in the eastern part of the country. Meredith is known for its suite of women’s magazines such as Better Homes and Gardens and Fit Pregnancy. But the real prize will be the revenue that the combined entity will generate from political advertisements as the contest to become the next president heats up.

In fact, the winners in this deal may be on the Meredith side. Its shareholders will get to own 35 percent of Meredith Media General, which will have a presence in many battleground states, such as Florida, Ohio, North Carolina and Iowa, where Republican and Democratic candidates will be fighting the hardest for supporters over the next year. Most of that swing-state exposure comes from Media General’s portfolio, not Meredith’s. The two companies expect to complete the merger by June 30, 2016.

Investor Presentation by Meredith and Media General

Joseph Ceryanec, Meredith’s chief financial officer who will remain in that role at the combined company, said on a conference call with analysts Tuesday that in the last presidential cycle Meredith garnered about $45 million, compared with $200 million for Media General. He said their goal is to top that.

“It looks like if you get the merger closed by the middle of next year, there could be a pretty big opportunity for you,” James Dix, an analyst for Wedbush Securities, said on the call.

Meredith investors also will receive $34.57 a share in cash. The total cash-and-stock offer was worth $50.83 a share at 2:12 p.m. New York time. That’s a 14 percent premium to Meredith’s average stock price in the previous 20 days.

With Meredith’s top executives remaining at the helm but the Meredith business contributing largely magazines to the new entity, structuring the transaction with Media General as the acquirer may seem odd. But for Media General, the motivation may be simple: scale. The combined company will reach 30 percent of U.S. households in 54 markets, up from Media General’s 23 percent in 48 markets as of the end of 2014.

"This just continues a trend that’s been going on for nearly 5 1/2 years, where the local station owners feel a big need for scale vis-a-vis networks and carriers and retransmission fees, all of which is driving consolidation," said John Chachas, managing partner at Methuselah Advisors in New York. "Time will tell whether it proves to be as powerful as people hope."

Methuselah advised on last year’s TV merger between E.W. Scripps Co. and Journal Communications Inc. When that deal was announced, E.W. Scripps shares rose 8.5 percent, while Journal Communications surged 24 percent. They also spun off their newspaper businesses into a new publicly traded company called Journal Media Group Inc.

Investors seem less amped for Media General’s agreement to purchase Meredith. Media General shares slid 4.5 percent.