Are There Any Winners From The Meredith-Media General Combo?

According to analyst Daniel L. Kurnos, the two main themes identified were: 1) “Investor concerns remain centered on high-level story lines, often contrary to near- and medium-term fundamental actualities” and 2) companies continue to prioritize growth over free cash flow generation and margin expansion.

Furthermore, the report added, given that many of the attendees were related to the media world, much of the discussion revolved around the announcement of the merger between Media General and Meredith Corporation.

Are There Any Winners From The Combo?

According to the research note, there seems to be no winners in the Meredith–Media General merger so far.

Media General stockholders are still unhappy about both the price paid and about the fact that the deal eliminates the potential for a takeout by another company.

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On the other hand, Meredith shareholders are citing the potential deal with Time Warner Publishing, which would have generated roughly $10 per share in synergies, resulting in a consolidated value of $60 per share. Moreover, with shares trading below $50 heading into the earnings call next month, the premium looks “modest at best.”

The firm continued, “While it is difficult to handicap the likelihood of the deal getting approved, Media General faces a higher hurdle in achieving the necessary votes (the Meredith family, which owns 32 percent of the company, has already agreed to vote in favor of the transaction vs. Standard General’s 14.5 percent on the Media General side).”

Notwithstanding, the analysts believe Meredith’s stock faces the greatest risk; they explain they “have always felt Meredith needed to scale its broadcast business in an increasingly consolidated market, while standalone Media General has both merger opportunities and an already depressed stock price given their free cash flow projections (standalone yield of ~20 percent).”

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The firm’s experts think the deal is likely to be consummated and point out that there are more than a few positives “getting lost in the noise, including retrans synergies and a significant boost to Media General’s digital monetization strategy along with a consolidated 25 percent FCF yield, but suspect the deal may hinge on how Meredith’s management team – which remains relatively unknown to many investors – is received by Media General’s shareholder base.”

Kurnos highlighted that Steve Lacy and his team will provide “some stability from the top down, along with a strong focus on returning cash to shareholders." However, he is unsure about how investors will feel about Lacy’s "conservative" managerial style.

Benchmark issued Buy ratings for both Meredith and Media General.

Shares of Meredith and Media General fell on Monday trading.

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