Many have predicted that ahead of the FCC’s spectrum auctions next year, independent station groups would merge and consolidate in an effort to control and use that spectrum as efficiently as possible. Another school of thought says that with media companies in financial distress, common ownership could be the key to mutual survival.
That latter theory is being put to the test in the announcement that Media General, Inc. and privately held New Young Broadcasting Holding Co. plan to merge their combined resources, which, if approved, would total 30 owned or operated broadcast TV affiliates in 27 markets (reaching 16.5 million, or 14 percent, of U.S. TV households) across the country. (Media General currently owns 18 network-affiliated stations, and Young owns or operates 12 network-affiliated stations.) 2012 revenues for both were $605 million, including approximately $115 million of political revenues, the companies said.
“Combining our two companies creates opportunities for profitable growth that neither company would be capable of achieving on its own,” said Deborah McDermott, chief executive officer of New Young Broadcasting, in a statement.
The respective Boards of Directors have both unanimously approved the transaction, and it has also received the necessary approval of Young's shareholders.
Under the merger plan, the combined companies will now be known as Media General and will be headquartered at Media General’s current headquarters in Richmond, VA. Media General President and CEO George L. Mahoney will keep his title, and Young Broadcasting CEO McDermott will report to him.
“The business combination of Media General and Young is a transformational event that will benefit shareholders, employees and the communities we serve,” said J. Stewart Bryan III, chairman of Media General. “The combination provides immediate accretion to free cash flow, a strong balance sheet, the opportunity to refinance debt at a much lower cost and attractive synergies.”
As part of the all-stock agreement, Media General will reclassify each outstanding share of its Class A and Class B common stock into one share of a newly created class of Media General common stock, which will be entitled to elect all of Media General's directors. Media General will issue approximately 60.2 million shares of the new Media General common stock to Young's shareholders. The estimated total shares outstanding after closing is 89.1 million. Media General's pro forma ownership split will be approximately 32.5 percent Media General shareholders and 67.5 percebt Young shareholders. The new Media General common stock will be listed on the NYSE and trade under the symbol MEG, subject to NYSE approval of the listing of the new shares.
There was no official word on how the merger would affect individual stations’ operations, but it’s assumed that a number of content sharing initiatives would be developed to repurpose stories and combine ENG activities where possible for use in various market its serves. Young's management said its owners share Media General's commitment to quality local journalism and to operating top-rated TV stations, making this merger a unique and compelling combination with significant growth potential.
George L. Mahoney, president and CEO of Media General, who will retain that role following the merger, said, "I'm very excited about the wonderful opportunities that lie ahead. The new Media General will have a highly competitive broadcasting platform and a strong digital focus, particularly for mobile platforms. We see opportunities for organic growth and other expansion.”
Media General's 2011/2012 average revenues were $320 million, and Young's were $219 million. As of March 31, 2013, Media General's outstanding debt was $601 million, and Young's was $164 million. If it is able to complete the refinancing, which is subject to debt market conditions at the time of refinancing, Media General believes that its pro forma interest expense following the refinancing would be approximately $50 million per year.