Investors Want Action From Media General

With its stock down by more than 50% over the past three years and its industry in turmoil, Media General (MEG) announced this week that it's considering the sale of five broadcast TV stations from its portfolio.

It's going to take more than that to generate any enthusiasm from Wall Street.

Investors want Media General to follow the example set by Belo Corp. (BLC) and E.W. Scripps (SSP) and separate its broadcasting business from its sluggish newspapers operations.

"We were an advocate on the restructurings at Belo and Scripps, and we think it would be a worthy endeavor at Media General as well," says Barry Lucas, senior vice president of research at Gabelli & Co. The company's chairman, J. Stewart Bryan III, and his family "would still control both entities, so it's not like they'd be giving up anything. In a restructuring like this, what you do is you create the opportunity to surface some shareholder value that is not currently being recognized."

Gabelli & Co., through an affiliate, owns a 20% stake in Media General's Class A shares, but that gives the firm little sway over the company's governance given its dual-class share structure. Bryan owns about 84% of Media General's Class B shares, which hold rights to elect two-thirds of the company's directors even though they comprise relatively small slice of its market cap.

The setup follows a pattern found throughout the newspaper publishing business, which is under fire as competition from the Internet cuts into revenue and profits. Earlier this year, controlling shareholders at Dow Jones (DJ) were muscled into selling their publishing empire to Rupert Murdoch's News Corp. (NWS-A), and the Ochs-Sulzberger family, which controls the New York Times (NYT), was publicly criticized by its largest outside investor for being unaccountable to shareholders.