RICHMOND, VA.: Media General announced a deal this morning with Berkshire Hathaway for the purchase of its newspapers and new financing. It will receive a $400 million term loan and $45 million in revolving credit from Berkshire Hathaway, while a subsidiary of the investment firm, BH Media Group, is purchasing Media General’s newspapers for $142 million in cash. BH is taking all the newspapers save Media General’s print properties in Tampa, Fla. The company said it is “in discussions with other prospective buyers” for the Tampa newspapers.
“This single transaction for virtually all of our newspapers accelerates the timing of our strategy to focus on our broadcast television business and its future growth opportunities, including digital content and mobile DTV,” Media General President and CEO Marshall N. Morton said.
Media General’s business model has been shifting toward its 18 TV stations and digital media in recent years. Broadcast television accounted for 77 percent of total platform cash flow in 2011; in the first quarter of this political year, it accounted for 87 percent. The company expects its TV stations to generate up to $45 million in political revenues this year. It also has strong positioning for the Olympics with eight NBC affiliates. Retransmission revenues are expected to reach between $32 million and $37 million, compared to $21 million last year.
“Longer term, we have a solid plan for significantly increasing our broadcast cash flow margins and total company EBITDA,” Morton said.
Media General has been scrambling to meet debt interest payments for three years, imposing furloughs on employees and suspending retirement plan contributions. Payment of dividends was suspended in 2009. The stock (NYSE: MEG) reached as low as $1.31 last fall, but started rebounding in later months after company executives told Wall Street it would make it’s debt interest payments for 2012. Today’s news buoyed shares from a close yesterday around $3.13 to $4.60 in late morning trading today.
Media General will use the loan to repay its existing bank debt due March 2013. The new loan will be due in May of 2020. In conjunction, Media General will issue Berkshire Hathaway penny warrants for approximately 4.6 million Class A shares, which represents 19.9 percent of Media General’s existing shares outstanding. In addition, Berkshire Hathaway has the option to nominate a director to Media General board.
The newspapers being purchased by BH Media Group include 63 daily and weekly titles in Virginia, North Carolina, South Carolina and Alabama, in addition to digital assets, including websites and mobile and tablet applications. The newspapers also have a substantial commercial printing business.
The Media General newspapers will be part of BH Media Group, along with the Omaha World-Herald Co. newspapers. A sister company of the Omaha World-Herald Co. World Media Enterprises, Inc., will manage the Media General newspapers.
“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper,” said Berkshire Hathaway Chairman Warren Buffett. “The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway.”
The newspaper transaction is expected to close on June 25. A transition will take place over several months, in coordination with Media General personnel. World Media Enterprises president Douglas Hiemstra will oversee the transition and operations of the acquired newspapers for Berkshire Hathaway.
After transaction fees and retaining $25 million in cash, Media General will use the proceeds from the newspaper sale to offer to repay existing senior secured notes, with any remaining funds to be used for repayment of the new term loan at par. The sale is subject to customary closing conditions, including Federal Trade Commission approval under the Hart-Scott-Rodino antitrust act.
The $400 million first lien term loan will have an interest rate of 10.5 percent, which could step down to 9 percent if total leverage were to reach 3.50x. The new loan will be issued at a discount of 11.5 percent and is secured pari passu with the company’s existing 11.75 percent senior secured notes due 2017. The closing date of the new credit agreement is expected to be no later than May 24.
The existing term loan in the amount of approximately $364 million will be fully repaid the same day the new credit agreement becomes effective. Media General now expects total cash interest expense in 2012 will be approximately $67 million. Total interest expense, including non-cash amortization of issue discount, new issuance fees, and the warrants, is expected to be $80 million in 2012.
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