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Media General (MEG) to Merge with Privately-Held New Young Broadcasting

June 6, 2013 7:04 AM EDT
Media General Inc. (NYSE: MEG) and privately held New Young Broadcasting Holding Co., Inc., both local broadcast television and digital media companies, today announced a definitive agreement to combine the two companies in an all-stock merger transaction. The new company will retain the Media General name and will remain headquartered in Richmond, VA.

Media General owns 18 network-affiliated stations, and Young owns or operates 12 network-affiliated stations. The combination will create a company with 30 stations operating in 27 markets, reaching 16.5 million, or 14%, of U.S. TV households. On a pro forma basis, 2012 revenues were $605 million, including approximately $115 million of political revenues.

The new company will have a strong balance sheet, including significant tax carryover net operating losses that will survive the merger, and an enhanced credit profile, creating opportunities to refinance existing debt at a significantly lower cost of capital. The merger will be accretive to free cash flow in the first full year. The companies have identified $25-30 million of operating and financing synergies.

The balance of network affiliations will include CBS (11), NBC (9), ABC (7) Fox (1), CW (1) and MNT (1). Sixteen of the 30 stations are located in the Top 75 DMAs. The new company will be more geographically diverse and will have a presence in more markets that generate strong political revenues. Its increased size will enhance its ability to participate in retransmission revenue growth, share growth of national and digital advertising, and syndicated programming purchasing.

Under the merger 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. No additional consideration will be paid to the Class B shareholders for giving up their right to directly elect 70% 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% Media General shareholders and 67.5% 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.

Media General's 2011/2012 average revenues were $320 million and Young's were $219 million. Media General's 2011/2012 average adjusted EBITDA was $90 million and Young's was $77 million. These adjusted EBITDA amounts have been normalized for acquisitions, dispositions and certain non-recurring, one-time and other items agreed upon by both parties. Broadcast financial results in even-numbered years include political revenues and Olympics advertising, and odd-numbered years mostly reflect the absence of those revenues. The broadcast industry, therefore, typically assesses a company's performance based on a two-year average of its financial results, which takes into account this biennial effect of political and Olympics revenues.

As of March 31, 2013, Media General's outstanding debt was $601 million, and Young's was $164 million. The new Media General intends to pursue a total debt refinancing of approximately $900 million, reflecting the total debt outstanding of both companies, call premiums on various debt issuances, a $50 million cash contribution to Media General's qualified pension plan, and transaction fees and expenses. 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.

Following closing, the initial Board of Directors will consist of 14 directors, including Media General's current nine directors and Young's current five directors. Mr. Bryan will serve as the initial chairman. At the 2014 Annual Shareholders' Meeting, the size of the Board will be reduced to 11 directors and consist of five of the current Media General directors (to include the current chairman, vice chairman and president/CEO plus two others as designated by the Nominating Committee), the five former Young directors, and one additional director selected by the Nominating Committee. The Nominating Committee will consist of five directors, including three former Young directors and two current Media General directors.

The transaction has been unanimously approved by the Media General Board of Directors and the Young Board of Directors. It also has received the necessary approval of Young's shareholders. The transaction is subject to the approval of Media General Class A shareholders and Class B shareholders, the Federal Communications Commission, clearance under the Hart-Scott-Rodino antitrust act, and customary third-party consents. The D. Tennant Bryan Media Trust, which holds 85% of the company's Class B shares, has agreed to vote in favor of the transaction. Media General will convene a special shareholders' meeting to vote on the transaction. The time, location and other details regarding this meeting will be communicated to shareholders at a later date. Media General will file a proxy statement with the SEC regarding the transaction. The proxy statement will include detailed financial and other information about Young and its business. The transaction is expected to close in the late third or early fourth quarter of this year.

RBC Capital Markets, LLC and Fried, Frank, Harris, Shriver & Jacobson LLP are advising Media General. Stephens Inc. and Gibson, Dunn & Crutcher LLP are advising the independent members of the Board of Directors of Media General, and Stephens delivered a fairness opinion to the full Media General Board of Directors. Wells Fargo Securities, LLC and Debevoise & Plimpton LLP are advising Young Broadcasting.


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