Turmoil in the Garden of Meredith - September 2015 M&A Activity
The once-lauded symbiotic relationship between print and broadcast media has wilted and seems destined for the compost heap. The last significant bastion of the print/broadcast synergistic strategy, Meredith Corporation, has agreed to be acquired by Media General. If all the media pundits opining about the deal are correct, Media General is after the 17 local TV stations that Meredith owns and will weed out the printed publications within short order.
The offer for Meredith is estimated at just over $3 billion including cash, stock in the new merged company, and assumption of existing debt. Based on Meredith’s trailing EBITDA of $315 million, Media General’s offer to buy Meredith equates to a 9.8x multiple, significantly higher than Media General’s own present market multiple of 8.3x, making this a dilutive transaction for Media General shareholders. An investment firm that owns a substantial interest in Media General dissected the offer further, splitting the target company’s value into its respective print and broadcast components. The analysis, made public in a letter from Starboard Value LP, states that although only 34% of Meredith’s revenue comes from the broadcast properties, approximately 55% of the EBITDA is attributed to broadcast. In their analysis, Starboard assumes that the highest value attributed to the printed publishing business is 7.0x, which yields an implied multiple of 11.9x for the broadcast portion. The disparity in value is even higher in Starboards’ alternate scenario in which the printed properties are assumed to be worth only 6.0 times EBITDA, yielding an implied multiple of 12.7x for the broadcasting business.
Believers in the enduring value of print will be disappointed by Starboard’s characterization of Meredith as having a “less desirable business mix” and that the proposed acquisition of Meredith “seems to be a step backwards in strategy for Media General” which had exited the “low-growth and low-margin” business of printed publications (see The Target Report – May 2012). (Of course, this ignores the considerable difference between the newspapers that Media General sold off and the stellar brands owned by Meredith, including their flagship title, Better Homes and Gardens.)
