Media General, Inc. (MEG) and LIN Media LLC (LIN) Friday announced a definitive merger agreement valued at $1.6 billion in a combination of stock and cash, which would create the second largest pure-play television broadcasting company in the U.S.
The shareholders of LIN Media will receive about $27.82 per share in cash or stock, which represents a 28 percent premium to LIN Media's trailing 20-day volume weighted average price on March 19.
Based on LIN Media's pro forma net debt balance of $968 million at December 31, 2013, the transaction's enterprise value is around $2.6 billion. It is expected to close in early 2015.
Media General expects the transaction to generate significant free cash flow. It will be immediately accretive on a pro forma free cash flow per share basis. With about $150 million of pro forma digital revenues, the combined digital media business will be the largest and most diversified in the TV broadcasting sector, the companies said.
Media General has formed a new holding company, which after closing will be named Media General. The company's shareholders will receive one share of the new holding company for each share of Media General that they own upon closing.
LIN Media shareholders will receive for each LIN share $27.82 in cash or 1.5762 shares of the new holding company, subject to proration.
The aggregate cash amount available for LIN Media shareholders electing cash is $763 million. When the transaction is closed, LIN Media shareholders will own about 36 percent of the fully-diluted shares of the new holding company.
Together, Media General and LIN Media will own and operate or service 74 stations across 46 markets, reaching approximately 26.5 million households, or 23 percent of U.S. TV households.
The companies' current TV portfolio includes 33 Big Four network-affiliated TV stations located in the Top 75 designated market areas or DMAs. It also includes 39 Big Four network-affiliated TV stations ranked number 1 or number 2 in their markets and the second-largest CBS affiliate group in the U.S.
Media General expects some of these stations to be swapped or divested to address regulatory considerations.
Apart from the websites associated with each TV station, Media General's digital media portfolio will include LIN Digital, LIN Mobile, Dedicated Media, HYFN, Nami Media and Federated Media.
Media General expects about $70 million of annual run-rate synergies within three years after closing.
Vincent Sadusky, LIN Media's President and Chief Executive Officer, will become President and Chief Executive Officer of Media General. Stewart Bryan III will continue to serve as Chairman of the Board. The new company will remain headquartered in Richmond, Virginia.
RBC Capital Markets has agreed to provide $1.6 billion in total committed financing to Media General for the transaction.
The new Media General common stock will be listed on the NYSE and trade under the symbol MEG. The initial Board of Directors of Media General will consist of 11 directors, seven of which will be designated by Media General and four of which will be designated by LIN Media.
The transaction has been unanimously approved by the Board of Directors of both companies.
MEG, which closed at $17.34 on Thursday, is up 12.1 percent in pre-market activity.
LIN, which closed at $14.90, is down 1 percent in pre-market activity.
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