NEW YORK (The Deal) -- Nexstar Broadcast Group (NXST - Get Report) CEO Perry Sook's unsolicited $4.1 billion takeout offer for Media General (MEG) is an anomaly in TV broadcasting, a sector where buyers and sellers have tended to find consensus.
"It's been a very clubby industry," said Barry Lucas of Gabelli & Company.
Collegiality aside, a suitor has to consider potential complications in obtaining a TV station license transfer from the Federal Communications Commission if the seller does not cooperate.
"It doesn't make the transition go very smoothly," Noble Financial Capital Markets analyst Michael Kupinski said regarding the prospect of a regulatory review of an unfriendly takeover.
Sook acknowledged that a hostile buyout would be difficult proposition in a late-September investor call discussing the company's bid for Media General. "Both parties, the buyer and the seller, have to sign the license transfer application," Sook told investors. "So we've got to come to terms on a deal that both parties can agree with. Otherwise, you don't get it before the FCC."
Media General rebuked an offer from Nexstar over the summer, instead offering to buy Meredith Corp. (MDP - Get Report) for $2.4 billion. Sook is getting an assist from activist fund Starboard Value, which has threatened a proxy fight with Media General if it proceeds with the Meredith acquisition. It wasn't Media General's first activist encounter. The Richmond, Va., media group clashed with Philip Falcone's Harbinger Capital Partners from 2007 to 2008.
Concerns over the acquisition of Meredith, which owns magazines including Better Homes and Gardens and Family Circle in addition to TV stations, have made Media General more affordable in recent weeks. The stock dropped from $11.58 before the Meredith bid to a low of $9.74 in mid-September before talk of a Nexstar offer arose. The stock traded around $11 before Nexstar's late-September offer of $14.50 per share.
Dual-share class structures at many traditional media groups have deterred hostile takeovers and activist campaigns. Until a few years ago, Media General enjoyed the protection of a tiered equity holdings. Media General unwound its dual-class stock structure when it merged with New Young Broadcasting Holding Co. Inc. in 2013, however.
"You could argue at that point it became a more viable target," Lucas said. "The drop in the stock price after the Meredith deal that opened the door that much wider."
SNL Kagan Research Director Robin Flynn said the savings and other benefits of consolidation have led to friendly transactions. "Parties are typically willing to enter into these deals to gain scale," she said. TV station groups have sought extra clout as they negotiate with networks over programming costs, and with ever-larger cable operators over the fees they collect for their broadcasts.
Nexstar and Media General fit well together, Flynn added. The companies could combine under government station ownership limits with minor divestitures. When Media General bid for Meredith, Flynn said, investors wondered whether Nexstar would lodge a bid.
Sook opened discussions with Media General in March, he said in the investor call. The company was willing to be the buyer or seller at that point, he explained. When Nexstar approached Media General again in August, it was as a buyer. Media General rejected the offer.
Acquiring Media General would tie up a number of strategic loose ends for Sook. Nexstar also talked with shareholders of LIN Media LLC about a potential deal, before Media General acquired the TV station group last year for $1.6 billion.
"Perry has been pursuing this deal for more than six months. Beyond that he had pursued Lin Media prior to the Media General acquisition," Gabelli's Lucas said. "This has been a romance a long time in the making."