Nexstar Makes Bid on Media General to Scuttle Meredith Deal

  • Offer worth $14.50 a share, 30% higher than Friday's close
  • Nexstar tries to break Media General's deal with Meredith

Nexstar Broadcasting Group Inc. made an unsolicited bid to buy Media General Inc. for about $1.85 billion, trying to break the broadcaster’s agreement to acquire TV-stations owner and magazine publisher Meredith Corp.

Nexstar’s proposal, currently valued at $14.50 per Media General share, includes $10.50 in cash and a fixed ratio of 0.0898 Nexstar shares, according to a statement Monday. The offer is 30 percent higher than Media General’s closing price on Sept. 25.

In a letter to Media General, Nexstar Chief Executive Officer Perry A. Sook said his company has been trying to enter into “substantive” negotiations with Media General for months about a merger. Instead, Media General agreed to buy Meredith in a $2.4 billion transaction earlier this month, adding network affiliates and magazines such as Better Homes and Gardens and Shape.

“It is illogical that Media General’s Board has refused to engage with us and has instead pursued an ill-conceived and value-destructive acquisition of Meredith that would once again expose Media General shareholders to the risks of the low-margin publishing business,” Sook said.

Meredith shares slumped 5.6 percent to $43.43 at the close in New York, the biggest single-day decline in more than two years. Nexstar fell 2.3 percent to $43.51. Media General gained 22 percent to $13.64 for the largest one-day rise since June 2013.

Media General’s board “will carefully review and consider the proposal,” the company said in a statement, adding that it won’t comment until the directors complete the review. A Meredith spokesman didn’t respond to a request for comment.

Nexstar is going hostile on a company that’s bigger than it is, both based on 2014 revenue and market capitalization. A combination with Media General would own 162 TV stations and reach 39 percent of U.S. TV households, according to Nexstar. The total value of the offer is about $4.1 billion, including debt.

On a conference call Monday, Sook said he began talking with Media General shareholders and management in March, and made a private proposal in August that was “summarily rejected as undervaluing the company.”

Local broadcasters have seen a lot of consolidation in recent years. In 2013, Gannett Co. agreed to buy Belo Corp. for about $1.5 billion, while Media General itself bought New Young Broadcasting Holding Co. They’re seeking to get bigger to gain bargaining power with pay-TV providers like AT&T Inc. and Comcast Corp. and be able to charge higher rates, known as retransmission fees, for the right to carry their stations, analysts said. 

“These TV deals are all about gaining scale over pay-TV distributors and programmers,” said Paul Sweeney, an analyst at Bloomberg Intelligence. “The consolidators also are making a bullish bet on the value of TV spectrum -- too much is never enough.”

12-Month Period

Nexstar’s proposal to buy Media General is expected to achieve $75 million of cost savings in its first year after closing, according to a Bloomberg Intelligence analysis.

Dan Kurnos, an analyst at Benchmark Co., said Nexstar’s offer could break the Media General-Meredith deal.

“Both the Meredith-Media General deals and the Nexstar-Media General deals should be value-accretive or cash-flow-accretive in the long term,” Kurnos said. “But if you’re a broadcast player, I think you like the management team, the track record and the reach that’s provided through the Nexstar acquisition, and you would probably prefer that.”

James Dix, an analyst at Wedbush Securities Inc., said the Nexstar deal is easier for investors to analyze.

Nextstar, Media General and Meredith specialize in operating local affiliates of broadcast networks including 21st Century Fox Inc., CBS Corp., Comcast’s NBC and Walt Disney Co.’s ABC.

(An earlier version of the story corrected the cash portion of the offer.)

Before it's here, it's on the Bloomberg Terminal.