Meredith [NYSE:MDP] took initial bids for a group of its broadcast television stations at the close of 2020, including expansive offers that could lead to a deal for its entire station portfolio, two sources familiar with the matter said.
This news service previously reported on 2 December, 2020 that the Des Moines, Iowa-based television broadcasting and magazine publishing company had hired financial advisor Moelis to explore the sale of a small group of around four stations. Sources said at the time that the stations generated about USD 50m in broadcast cashflow, adding that the package was comprised of stations with a favorable tax basis to minimize any tax leakage from a deal.
Some bidders have made offers for this package, while others have proposed deals for individual stations or assets outside the package, these sources said. However, some bidders have made more expansive offers that could lead to a deal for all of Meredith’s stations, the sources added. Meredith is currently weighing suitors’ offers, the sources said.
Meredith owns a total of 17 stations that reach 11% of US households. It reports results for its television stations under its local media reporting segment. The segment generated USD 769.3m in revenue in fiscal 2020, which ended 30 June and therefore does not account for much of the political advertising spending in the 2020 US presidential election cycle. The local media segment reported an adjusted EBITDA of USD 210.5m and an operating profit of USD 79m for the period.
In the current environment, Meredith is likely to see bidders come in at the low end of a range from 8x to 10x cashflow for the four-station divestiture package, one of the sources said, though the second source said that offers are likely to come in materially lower. While the COVID-19 pandemic and the ensuing economic turbulence have disrupted many media companies, broadcast companies have been buoyed by a variety of factors, including a strong political advertising cycle coinciding with the presidential election, this source said.
Whether Meredith is able to reach a deal for all of its stations will depend on hitting a price high enough to enable it to substantially delever its struggling publishing business, one of the sources explained. As of 30 September 2020, Meredith reported roughly USD 3bn in long-term debt and around USD 200m in cash and cash equivalents. Meredith has a market cap of USD 936m. During a presentation yesterday at the Citi 2021 TMT West Virtual Conference, Meredith executives identified debt reduction as the company’s top priority.
Both sources agreed that, if a deal is struck for the stations, it might have to be in a range above USD 2.5bn for Meredith to find adequate value. However, one of the sources cautioned that buyers may struggle to go above USD 2bn.
If a deal for all of the stations is struck, it could be structured to reduce tax liability by spinning out the publishing business and realizing a loss on the spin, then selling the remaining broadcasting company, both sources said.
Meredith amended its charter at its last shareholder meeting to allow the controlling family to maintain its super-voting share structure in the event of a separation between the publishing and broadcast companies.
Asked about this move at the Citi conference, CEO Thomas Harty said that Meredith has long considered the possibility of a separation after sufficiently scaling up both sides of its business and that the board regularly reviews its options in this regard. However, he said that there is “nothing imminent associated with that decision.” He said he “likes both these businesses together” and that you “don’t want to be doing [a spin] in the middle of a pandemic.”
Meredith suspended its dividend in 2020. The company has grappled with its leverage and delivering synergies since acquiring magazine publisher Time for USD 2.8bn in 2017. That deal saw Koch Equity Development invest USD 650m in preferred shares to support the transaction. Both sources and additional sources have told this news service that the Meredith family, which still controls the company through super-voting shares, values bringing back the company’s dividend.
The major impediments to doing so have been the Koch preferred, which Meredith redeemed last year, and getting leverage under control, one of the sources said. A lucrative deal for the company’s broadcast stations would help to eliminate the remaining impediment posed by the company’s leverage, this source added.
Both sources cautioned that it would still be difficult to strike a deal for all of the company’s stations and that a range of outcomes remains possible, including Meredith opting against any divestitures altogether.
Logical suitors who could look to a deal for the entire station portfolio include private equity sponsor Apollo Global Management [NYSE:APO] and Gray Television [NYSE:GTN], the sources said. Both companies bid for broadcaster Tegna [NYSE:TGNA], which currently trades at a market cap of over USD 3bn, in early 2020 before the disruption caused by the COVID-19 pandemic put the process on hold.
Meredith declined to comment.
by Jonathan Guilford