WALL STREET JOURNAL, January 27, 2016. For the second time in three years, Meredith Corp. is left without a dance partner.
Meredith on Wednesday agreed to let Media General Inc. abandon its $2.4 billion merger agreement, capping a five-month drama that hit turbulence as soon as Nexstar Broadcasting Group Inc. publicly made a bid for Media General in late September. For Meredith, the deal with Media General would have created a larger, more competitive business–bolstering its local television stations across the U.S. and reducing its exposure to the magazine business. Instead, Nexstar will walk away with Media General.
It isn’t the first time Meredith shareholders have been left empty-handed. In early 2013, Meredith was involved in extensive talks to create a new company by combining most of Time Warner Inc.’s magazine group with Meredith’s magazine portfolio that includes titles like Family Circle and Better Homes and Gardens. However, that deal eventually unraveled, and Time Warner instead decided to spin off Time Inc. into a separate, publicly traded company.
This time, Meredith is walking away with a $60 million breakup fee–not the heftier payment they were said to be pushing for in order to agree to let Media General terminate their deal, but a cash consolation nonetheless. Meredith also gained the right to negotiate for the purchase of some Media General assets. The question is what will the more-than-century-old company do now?
With its shares down 25% in the last year, Meredith could use the cash windfall to buy back more stock and increase its dividend that pays out $1.83 a share annually, according to a person familiar with the company’s thinking. As of Wednesday morning, Meredith shares were up 2.1% to $39.72, giving the company a market value of about $1.8 billion.
“We entered into this potential transaction opportunistically and from a position of strength as a very successful stand-alone company,” said Stephen Lacy, Meredith’s chief executive, via email. “While we worked hard to close the merger, we worked just as hard over the last year–and last several years for that matter–to create a strong Meredith Corporation.”
From an operational standpoint, Meredith is left with its 17 local TV stations that reach 11% of U.S. households and a portfolio of magazines such as Parents and Eating Well. It is one of the few U.S. media companies that have chosen to keep its TV and publishing assets under one roof.
Media conglomerates including Time Warner, Tribune, News Corp. (owner of The Wall Street Journal), Washington Post Co. and Scripps separated off print assets in recent years that had become less profitable as readers and advertisers migrated online. Even Gannett Co. last year spun off its publishing business and renamed its broadcasting and digital-media business Tegna Inc.
Meredith, on the other hand, has maintained an interest in publishing, even adding titles like Shape and Martha Stewart brands.
The fact that Meredith hadn’t separated its broadcast and print properties was clearly an issue in the deal with Media General, which had sold off its newspapers in 2012, according to Carl Salas, an analyst at Moody’s Investors Service.
“One of the concerns was that Media General had earlier exited the publishing business, and with the Meredith deal they would be bringing it back,” Mr. Salas said.
In fact, Nexstar CEO Perry Sook made that same point during his efforts to break up the Meredith-Media General deal. In a September letter to Media General, he said the proposed combination with Meredith “exposes Media General once again to the publishing business” and creates a company with an earnings mix “with significant exposure toward publishing.”
“They need greater scale. The question is should they be acquired or acquire more companies,” said Mr. Kreisky. “There is little real fit between print and local television stations. Perhaps spinning out the television group would generate additional value.”
A successful deal with Media General would have boosted Meredith’s broadcasting footprint to 88 local TV stations reaching 39% of U.S. households. For broadcasters like Meredith, scale increasingly matters when negotiating for the lucrative retransmission fees that cable companies pay to carry their signals.
“Meredith has got some great top 20 stations, but what they need to do is find some new partnerships and create scale,” said Mr. Salas of Moody’s. “Larger broadcasters with bigger footprints will be better positioned in the future.”
Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com