Media General agrees to Nexstar negotiations, rejects bid

NEW YORK – Media General Inc.’s board agreed to enter into negotiations with Nexstar Broadcasting Inc. about an acquisition, though unanimously rejected the company’s previous bid, saying it undervalues the company.

Nexstar made an unsolicited $1.85 billion takeover offer in September, trying to scuttle Media General’s $2.4 billion agreement to buy Meredith Corp. earlier that month. Media General’s board continues to recommend the deal to buy Meredith, the Richmond, Va.-based Media General said in a statement Monday.

Nextstar, Media General and Meredith all specialize in operating local affiliates of broadcast networks including 21st Century Fox Inc., CBS Corp., Comcast Corp.’s NBC and Walt Disney Co.’s ABC. A merger between the companies — Media General and Nexstar or Media General and Meredith — would let them to charge higher rates, known as retransmission fees, to pay-TV providers like AT&T Inc. and Comcast for the right to carry their stations.

Perry Sook, CEO of Nexstar, said the company will move forward with negotiations “while at the same time maintaining our financial discipline.”

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“We are surprised that Media General’s Board considers the value of our proposal to be inadequate today, however, we are willing to engage with them to hear their perspectives,” Sook said in a statement Monday. “Our proposal will deliver superior, immediate and long-term value to Media General shareholders compared with any alternatives available to the company.”

Nexstar’s existing offer, based on its closing share price on Nov. 13, is valued at $15.70 per Media General share, a 41 percent premium over Media General’s closing price on Sept. 25, Nexstar said. When the offer was first announced in September, it was valued at about $14.50 a share.

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

Yet, Media General’s board said the proposal discounts the company’s growth potential while ignoring its spectrum licenses that can be sold at a U.S. auction in 2016.

Back and forth

“This is going to go on for months, this back and forth,” said Dan Kurnos, an analyst at Benchmark Co.

The most probable outcome is Nexstar buying Media General for a revised, higher offer of about $17 a share, he said. Nexstar made an initial offer of $17 per share to Media General before lowering its proposal due to a market selloff, people familiar with the matter have said.

On Oct. 14, Media General got permission from Meredith to exchange information with Nexstar. Starboard Value LP, which holds 4.5 percent of the company’s outstanding shares, sent a letter last Tuesday to Media General urging the company to begin negotiations with Nexstar and expressing frustration the company has taken this long to determine Nexstar’s bid would “reasonably lead to a superior offer.”

“Meredith understands Media General board’s fiduciary responsibility to respond to the Nexstar proposal consistent with our binding merger agreement announced on September 8, 2015,” the Des Moines, Iowa-based company said in a statement Monday. “However, Meredith still remains confident that the combination of Meredith and Media General will generate superior shareholder value — over both the near- and long-term — as compared to a potential Nexstar transaction.”

Media General has hired Goldman Sachs Group Inc. and Weil, Gotshal & Manges LLP to help the board decide how to proceed. It has also retained as advisers RBC Capital Markets LLC and Fried, Frank, Harris, Shriver & Jacobson LLP.

Meredith can now wait for a shareholder vote on Media General’s proposal. If it’s rejected, Meredith would get a breakup fee of $15 million. If Media General terminates a deal with Meredith before the vote, Meredith receives $60 million. The company may also renegotiate with Media General to give the latter better terms.

Media General dropped 0.5 percent to $15.38 at the close in New York. Nexstar increased 1.2 percent to $58.63 while Meredith climbed 1.8 percent to $45.87.

A spokesman for Starboard didn’t immediately respond to a request for comment.

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