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The Last Belle at the Ball – Tegna Broadcasting’s Investment Appeal

"It is an assessment which has fueled regular merger rumors, and which may have some financial fidelity. Whoever acquires Tegna will instantly become one of the top four or five broadcasters in the nation." -Adonis Hoffman, Esq.

So what do you call a TV station group that owns 62 stations in 51 markets; is the top NBC affiliate, the second leading CBS affiliate, and has the largest number of Big Four affiliates in top 25 markets? The short answer is “appealing.” Such is the status of Tegna Broadcasting, perhaps the last pretty girl left at the dance.

Consolidation in the local TV business has taken a number of broadcasters off the market. Media General, Tribune and Raycom are just a few of the broadcast brands recently subsumed by bigger players. Following its spinoff from the erstwhile Gannett media empire, Tegna became an attractive takeover target and remains the object of interest for acquisitive firms today.

Tegna’s Value

Tegna has been viewed as a capable custodian, but not a great captain, of its treasure trove of virtuous assets. According to some analysts and potential buyers, the company has consistently under-performed. It is an assessment which has fueled regular merger rumors, and which may have some financial fidelity. Whoever acquires Tegna will instantly become one of the top four or five broadcasters in the nation.

Until Nexstar stepped into Sinclair’s shoes and closed the deal with Tribune, it was a foregone conclusion that Tegna eventually would become another citizen of the Nexstar nation. But with the Tribune acquisition, Nexstar stood only a hair’s breadth away from the FCC’s 39% media ownership cap. That left it no more room for acquisitions—an untenable position for CEO Perry Sook, who has become the main cheerleader for eliminating the national cap altogether.

Nexstar is not alone. The same could be said for Sinclair, which effectively has little room to grow under the cap either. Their dominant market positions have opened the door for other owners to maneuver under the FCC’s ownership rules. More importantly, Tegna has emerged as a prize possession for a buyer that is unencumbered by national cap limitations.

The Key Contenders

Into this scenario came Standard General, an investment firm punching well above its weight in the media arena. Although a relative new kid on the block, Standard General made a bold move to wrest control of Tegna by launching a proxy battle and attempting to stack the board with four new directors. In a well-publicized screed, Tegna rebuffed Standard General’s CEO by denying him and the others a seat on the board. Its stinging, and somewhat personal, rationale smacked of insult and innuendo.

Tegna published a fact sheet claiming that Standard General is the wrong buyer for the company--Standard General is TEGNA’s largest equity holder and is seeking the board seats, but says it it not trying to buy TEGNA--based primarily on allegations that Standard’s business interests are conflicted. Tegna has made much ado about Standard’s equity stake in the woman-led broadcast group that owns two ABC affiliates in Nebraska and Rhode Island.

While that may have made Tegna CEO Dave Lougee feel good, it could prove to be short-sighted. Standard General is no ordinary suitor. It owns nearly 12 percent of Tegna’s shares and is led by the steady hand of Sooyung Kim, a skillful and successful aggregator of underperforming companies. Soo’s ability to build coalitions and navigate thorny paths should not be overlooked. At the end of the day, all offers for Tegna must go through Soo’s hands, and it is doubtful we have seen the last of him on this deal.

As the Standard General gambit became more public, Gray Television made a quiet play for Tegna (since withdrawn), offering $20 /share. According to published reports, it was a deal that valued the company at about $8.5 billion in stock and cash. Although rich, the Gray deal, if accepted, would have resulted in the overlap of about 18 markets in which Tegna had a Big 4 affiliate or other station. That could would have meant a host of possible divestitures in Huntsville, Alabama; Tucson, Arizona; Davenport, Iowa, Boise, Idaho; Louisville, Kentucky; Bangor-Portland, Maine; Charlotte, North Carolina; Cleveland and Toledo Ohio; Midland-Odessa, Texas; Tyler and Waco Texas.

But before the ink could dry on the Gray offer, private equity firm Apollo Global Management swooped in with an all-cash offer, upping the ante. Few details are available on that offer. But we all understand that Apollo, with over $77 billion in assets under management, has been an aggressive aggregator of telecom, media and technology companies. If it were to succeed, the experts suggest that it would need to divest in six major markets, although it is well under the national cap.

Not to be outdone, emerging media mogul Byron Allen joined the fray with his own $8.5 billion offer, it too, is all cash. Fresh from a new round of station acquisitions in Alabama, California, Indiana, Minnesota, Mississippi and Oregon, the Allen Media Group would be forced to divest only one station in Huntsville, Alabama if its bid is accepted.

If accepted, Allen’s bid would be another milestone in his historic march to becoming the biggest African American media player in the business. Such a deal might find favor with Soo Kim, another minority pioneer, who just happens to be Tegna’s biggest shareholder. There is no doubt, this would bring smiles from Congress and the FCC, which is under pressure for not doing enough to further minority media ownership. Plus, an Allen – Tegna tie-up would dull the sting of Allen’s recent defeat in the Supreme Court case against Comcast.

So Many Options

So with a surfeit of suitors, what is Tegna to do?

The company has a number of options. First, and foremost, it could do nothing. There is no immediate mandate to sell and the company could resist any of the offers now on the table. Second, Tegna could continue to play the field and hope for an even richer offer from the likes of Bain, Blackstone, Platinum or another private equity player that seems to really like and understand the broadcast space. That might set off a bidding war among the titans—something sellers and shareholders would welcome.

Unless the Gray offer is shored up later, it appears to be the most anemic. Shareholders would be hard pressed to accept a poorer bid in the face of more cash from Apollo or Allen. In a downward trending economy, cash matters just as much, if not more than, price. Plus, a Gray-Tegna combination looks to be more cumbersome and complex than the others, even if Gray has a sterling record at the FCC.

And last, but not least, would be a bid from Tegna’s biggest shareholder, itself, Standard General. As the company forces a proxy battle, no one knows as much about Tegna’s performance, or lack thereof, than Standard General’s leadership. Again, Soo Kim has been adamant about Tegna’s laggard response to accretive M&A in the linear television space. While there may be personal animus coming from Tegna, it is clear Standard General means business.

Finally, we cannot overlook the context of these developments. As the Corona effect continues to influence every aspect of life, and especially the market, there are no guarantees for anyone. Tegna may be high value today, but bargain basement tomorrow. A vote on the proxy battle is slated for April 30. Stay tuned.

© 2020 Adonis E. Hoffman. All rights reserved.

Adonis Hoffman is chairman of Business in the Public Interest and CEO of The Advisory Counsel, Inc. He is the former chief of staff and senior legal advisor to an FCC Commissioner. Hoffman has no business, consulting, equity, financial or lobbying interests in any of the companies mentioned in this article.