Bull!!! Run!!!

In today's intense financial scrutiny of publicly traded corporations, you don't see companies gracing their execs with the perks they once did. Probably the flashiest perk in SEC filings is frequent-flier privileges on company jets.

That's why it's surprising to see how much the CEO of Gray Television, J. Mack Robinson, stands to benefit from a plan to spin off the company's newspapers and acquire a company he controls.

The deal's chief critic is Victor Miller. The veteran broadcasting analyst for Bear, Stearns & Co. has harshly attacked the plan, hosting a conference call for his investor clients and publishing two reports on it. Miller is not subtle: “The conflicts of interest are as deep as I have ever seen.”

Gray, a well regarded operator of TV stations concentrated in small markets, decided in August to spin off its five newspapers and a small paging operation into a new company, Triple Crown Media. That would leave Gray a pure TV play, generating about $350 million a year from 30 stations.

The controversy comes from a plan to spin off a third company, ailing sports-marketing firm Bull Run Corp. Its main business is helping universities promote their sports teams —for example, printing sports guides, cranking out more than 700 publications and running 30 Web sites.

A few years ago, Bull Run indeed had a bull run, driving its stock up to $40 per share and prompting a hostile takeover of sporting-goods manufacturer Rawlings. But steady losses have transformed Bull Run into a penny stock, trading in the pink sheets for around 35¢.


What's the problem? Triple Crown media, according to SEC reports, plans to acquire Bull Run. Robinson is chairman of Triple Crown and Bull Run, and SEC filings show he owns 59% of Bull Run stock.

Robinson has also personally guaranteed $58.9 million in Bull Run's bank loans. If the company defaults, he must pay. Merging Bull Run with Gray's healthy newspaper operation will release him from his guarantee.

What's more, Robinson has advanced $6 million to Bull Run and owns about $20 million in its preferred stock. That will be converted into preferred shares of Triple Crown—a nice switch for him.

Gray President/COO Bob Prather, also president of Bull Run, says he can't discuss the deal while the SEC is reviewing it. Ray Deaver, a broadcaster and chairman of a special committee of three outside directors that scrutinized the deal, also declined to comment.

But board member William Mayher III defends the transaction. Mayher, a member of the special committee, contends that Bull Run is in the midst of a turnaround. Further, its guide business is a good match with the Gray newspapers.

On Robinson's potential conflicts of interest, Mayher says, “The committee was very mindful of all of this. We wanted to make sure that everything was arm's length. We want to make very sure that the minority shareholders aren't in any way cheated.”

For example, Triple Crown plans to cash in Bull Run preferred stock owned by other investors and pay off all deferred dividends. Robinson, 81, won't get cash but will instead get Triple Crown preferred stock that the company does not have to fully redeem until 2021.

Mayher says that two sets of investment bankers have approved the deal's structure and an unaffiliated analyst—Sean Butson, who recently left Legg Mason—supported it. Miller, Mayher says, “has sort of been a lone ranger.”

Gray's largest outside shareholder, money manager Mario Gabelli, whose companies control 10% of the company, didn't return calls by press time. Prather is a member of the board of Gabelli Asset Management.

Miller is happy for Gray to become a pure-play broadcaster, but he would prefer the company sell the newspapers (which account for only 15% of Gray's sales) and repay debt.

Miller does have a bias in the transaction. With or without Bull Run, Triple Crown will be too tiny and too closely held for the bulk of his clients, big institutions, which already consider Gray, whose equity is worth around $450 million, small. They'll probably sell their Triple Crown shares in short order.

Miller sees no business case for acquiring Bull Run. “Few investors are clamoring for a sports-marketing/newspaper/printing/telecom company,” he says in a recent report. Its title: “Anatomy of Gray's BULL Deal—Walk Away.”