Starboard Delivers Letter to Media General Chairman and CEO and Board of Directors

NEW YORK, Sept. 29, 2015 /PRNewswire/ -- Starboard Value LP (together with its affiliates, "Starboard"), one of the largest shareholders of Media General, Inc. (NYSE: MEG) ("Media General" or the "Company"), with beneficial ownership of approximately 4.5% of the outstanding shares of the Company, today announced that it has delivered a letter to J. Stewart Bryan III, Chairman of Media General's Board of Directors (the "Board"), and Vincent L. Sadusky, Chief Executive Officer of the Company, with a copy to the Board.

The full text of the letter follows:

September 29, 2015

Media General, Inc.
333 East Franklin Street
Richmond, VA 23219
Attn: J. Stewart Bryan III, Chairman; Vincent L. Sadusky, Chief Executive Officer

cc: Board of Directors

Dear Stewart and Vincent,

Starboard Value LP, together with its affiliates ("Starboard"), beneficially owns approximately 4.5% of the outstanding shares of Media General, Inc. ("Media General" or the "Company"), making us one of the Company's largest shareholders.

By way of background, Starboard is an investment management firm that seeks to invest in undervalued and underperforming public companies.  Our approach to such investments is to actively engage with management teams and boards of directors in a constructive manner to identify and execute on opportunities to unlock value for the benefit of all shareholders. Our principals and investment team have extensive experience and a successful track record of enhancing value at portfolio companies through a combination of strategic refocusing, improved operational execution, more efficient capital allocation, and stronger management focus.

We began purchasing shares of Media General following the Company's announcement of its intention to acquire Meredith Corporation ("Meredith").  Our investment thesis is based on our view that the proposed acquisition of Meredith is value destructive, the transaction is subject to a shareholder vote, and, if the transaction is terminated, Media General stand-alone is significantly undervalued with opportunities to create substantial value for shareholders through a restructuring plan that would address the 350 to 500 basis point operating margin disparity between the Company and its best-in-class peers.  Further, with consolidation of the broadcast industry well underway, we felt that there should be a far more synergistic and value accretive partner for Media General had the Company fully explored all available strategic alternatives.

The purpose of this letter is to share our views on:

(i) The currently pending acquisition of Meredith;

(ii) The unsolicited proposal by Nexstar Broadcasting Group, Inc. ("Nexstar") to acquire Media General; and

(iii) Next steps the Board of Directors of Media General (the "Board") should take.

Views on the Currently Pending Acquisition of Meredith

As demonstrated by the 10.5% decline in Media General's stock price in the five trading days following the announcement of the Meredith transaction, shareholders were clearly surprised and dismayed by the transaction.  Upon review, it is not difficult to see why.  Effectively, Media General agreed to pay a significant premium to acquire a larger^[1] company with a less desirable business mix and then hand over management control to the target's management team.  This type of transaction structure is unconventional, at best, and upon closer investigation, appears to be contrary to the best interests of your shareholders.    

Further exacerbating the issue is the fact that the proposed Meredith transaction seems to be a step backwards in strategy for Media General.  Media General chose to exit the low-growth and low-margin newspaper business in 2012 and indicated to its shareholders at that time that the Company would remain focused on growing its broadcast business going forward.  However, the Meredith transaction, if consummated, would bring Media General back into the publishing business given that approximately 66% of Meredith's revenue is generated from its publishing business while only approximately 34% of Meredith's revenue is generated from its broadcast business. 

Even if the transaction made strategic sense, the valuation does not seem to make financial sense.  The proposed transaction values Meredith at 9.7x^[2] its average forward 2-year EBITDA while Media General standalone trades at 8.3x^[3] its average forward 2-year EBITDA.  As shown in the table below, if you assume Meredith's publishing business is valued in line with other publicly-traded publishing companies, it would imply Media General is paying approximately 11.9x – 12.7x the average forward 2-year EBITDA for Meredith's broadcast business, a significant premium to where Media General currently trades.

It is inconceivable to us that Media General would be willing to pay a premium multiple to acquire a company with a less desirable business mix while handing over management control to Meredith's incumbent management team whose background is primarily in operating publishing businesses.  From the perspective of a Media General shareholder, it is extremely difficult to understand the rationale for the Meredith transaction.   

In light of these and other serious concerns with the Meredith transaction we would vote our shares 'against' the pending transaction even before giving consideration to Nexstar's unsolicited proposal to acquire Media General.

Views on the Unsolicited Proposal by Nexstar to Acquire Media General

With great interest, we reviewed yesterday's proposal from Nexstar to acquire Media General for $14.50 per share, consisting of $10.50 per share in cash and a fixed exchange ratio of 0.0898 Nexstar shares per Media General share.  We were surprised to learn that Nexstar had previously made a private proposal to acquire Media General but that management and the Board had refused to engage in discussions with Nexstar.  The Wall Street Journal reported yesterday that Nexstar's private proposal, which was submitted on August 10, 2015, was valued at $17 per share, which would have represented a 23% premium to the then current share price of Media General.  It is concerning to us, and we imagine to just about all of your shareholders as well, that management and the Board of Media General would refuse the opportunity to negotiate a potential value-maximizing transaction with Nexstar and instead proceed to expeditiously execute such an unconventional, value-destructive acquisition.

We believe a combination of Nexstar and Media General is highly strategic.  Nexstar management has a proven track record of execution and has created substantial value for its shareholders over the past five years.  In addition, we believe Nexstar's estimated synergies of $75 million appear conservative with significant upside making any stock component of a transaction particularly attractive. 

Clearly, Nexstar is serious about pursuing a transaction with Media General, and it is incumbent upon the Board to make every effort to negotiate the best deal possible with Nexstar within the parameters of the current Meredith merger agreement. 

Next Steps the Board Must Take to Ensure Shareholder Value is Maximized

It is clear to us, and should be clear to the Board, that the Nexstar proposal is reasonably expected to lead to a superior proposal, as required under the Meredith merger agreement in order for Media General to enter into a confidentiality agreement and negotiate a transaction with a third party bidder.  The Board should waste no time in making this determination so that discussions and due diligence with Nexstar can begin expeditiously. 

In light of the events leading up to the situation Media General currently faces, the Board must be reminded of its fiduciary duty to act in the best interests of its shareholders.  The trading activity in Media General following the announced transaction with Meredith and then the trading activity following the public disclosure of the proposal from Nexstar, should provide sufficient insight to the Board regarding the views of its shareholders.  Additionally, on yesterday's Nexstar conference call regarding its proposal, two of Media General's largest shareholders voluntarily voiced their support of a combination between Media General and Nexstar.

The current transaction with Meredith is structured so as to provide shareholders of Media General with an opportunity to vote on the transaction.  The Nexstar proposal would also be structured in a manner which would require a vote of the Media General shareholders.  Given the importance of the decision for Media General shareholders, in no event should the Board take any action to amend or negotiate terms with either party which would remove the opportunity for shareholders to vote on the recommended outcome.  At this point, it is incumbent upon the Board to negotiate the best possible transaction for Media General, whether that be a transaction with Nexstar or a revised transaction whereby Meredith would acquire Media General and Media General shareholders would receive a substantial premium from Meredith that is clearly superior to the current proposal from Nexstar.  Under any circumstance, such transaction should be subject to Media General shareholder approval.  

We hope that no further action beyond this letter will be needed but are prepared to take whatever actions we deem necessary to ensure that the best interests of Media General shareholders are of paramount importance.  We remind you that the entire board of Media General is annually elected and that shareholders have the right each year to elect representatives to the Board that will represent their best interests.  Should the current Board take any action to disenfranchise shareholders by failing to maximize value or by taking away Media General shareholders' ability to vote on the recommended outcome of this transaction process, we are prepared to nominate an alternative slate of directors and seek their election at the next annual meeting.  We hope this will not be necessary and fully expect the Board to be properly advised on how to proceed.  We hope to have a constructive engagement with you and are available to discuss the contents of this letter at your convenience.  We look forward to a successful outcome for the shareholders of Media General.

Best Regards,

About Starboard Value LP

Starboard Value LP is a New York-based investment adviser with a focused and fundamental approach to investing in publicly traded U.S. companies. Starboard invests in deeply undervalued companies and actively engages with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders.

Investor contacts:
Peter Feld, (212) 201-4878
Gavin Molinelli, (212) 201-4828

www.starboardvalue.com

^[1] Media General's market cap on September 7, 2015 (the day before the announced deal with Meredith) was $1.4 billion, and Meredith's market cap was $2.1 billion.

^[2] Assumes transaction value of $3.1 billion and consensus average forward 2-year EBITDA of $317 million for Meredith.

^[3] Assumes pre-announcement Enterprise Value of $3.7 billion and consensus average forward 2-year EBITDA of $444 million for Media General.

SOURCE Starboard Value LP