April 9, 2012
CC: Marshall N. Morton, James F. Woodward, John A. Schauss, George L. Mahoney, Stephen Y. Dickinson, Robert E. MacPherson, O. Reid Ashe, Jr. Scott D. Anthony, Diana F. Cantor, Dennis J. FitzSimons, Thompson L. Rankin, Rodney A. Smolia, Carl S. Thigpen, Coleman Wortham III
Mr. J Stewart Bryan III
Chairman of the Board
333 E. Franklin Street
Richmond, VA 23219
RE: 8-K dated April 9, 2012
Dear Mr. Bryan,
Kinnaras Capital Management LLC ("Kinnaras") is adviser to a number of entities and affiliates which own shares in Media General ("MEG" or the "Company"). This letter is in response to the latest 8-K released on April 9, 2012 as I believe some items in the 8-K only serve to demonstrate the need to sell off MEG in its entirety and divorce this company from the inept management team currently at the helm.
The 8-K provides information related to 2012 Operations, citing political revenue to range from $40- 45MM and a $10MM write down related to DealTaker.com. These two items only serve to support the idea that management must be immediately removed and the entire company put up for sale. While $40-45MM in political ad revenue is satisfactory, management - as with most of its strategies - was simply too late to the party and missed a golden opportunity to secure even greater revenue and cash flow.
The Florida Republican Primary was held on January 31, 2012 and a number of political ad dollars flow to news broadcasts. This fact has not escaped most broadcast stations in Tampa, which run three newscasts per day. However, this fact was apparently lost on management until just two weeks before the Florida Republican Primary when management finally implemented a midday newscast for the company's Tampa NBC station WFLA. While Florida will undoubtedly benefit from its swing state status in the Presidential election, how much potential revenue did management forfeit through its costly delays? The opportunity cost associated with missed political ads is severe given the political ad "rush" occurs every other year, yet somehow management squandered this relatively easy opportunity.
Shareholders are also curious as to why DealTaker.com continues to operate. This is another disastrous acquisition overseen by management, and investors largely predicted the eventual write-off of DealTaker.com well before the acquisition even closed. DealTaker.com and other web businesses are hemorrhaging cash. Management has also hired "consultants" to help fix these businesses. Why are these businesses not simply shut down to cease the cash burn and operational drag?
Other laughable portions of the 8-K include "Future Performance Targets" where one must wonder if those scripting these filing are oblivious to MEG's current situation. In any event, the commentary in some of these points reflects very negatively on management. The last two points under Future Performance Targets state:
- No plans for share repurchases or dividends over the near term
- No acquisitions are currently under consideration; however, management will opportunistically consider strategic M&A, particularly duopoly opportunities.
What planet does management live on thinking that their covenants would allow for any repurchases or dividends? Simply including that comment shows a management far beyond clueless. Similar to the repurchase or dividend comment, the second comment regarding acquisitions would illicit "eye-rolling" by any sensible shareholder. How can the company secure any level of acquisition financing given its current leverage situation and the value of its stock? Management's financing blunders are resulting in MEG's cash account being raided by MEG's various advisors yet shareholders are to believe this team can execute on future acquisitions? Secondly, in an environment where multiples for broadcast television are healthy, smart operators are sellers, not buyers. Once again, management never misses an opportunity to demonstrate how unfit it is to run MEG and exasperate shareholders.
As I stated in my letter last week, the Board has a chance to provide shareholders with a share price seldom experienced in recent years. All the Board needs to do is actually represent the interests of shareholders rather than management and sell off both the Newspaper segment and the Broadcast division. The combined enterprise value of both in a sale could range from $1.0B - $1.2B which would yield investors a share price of $6.50-$12.50 after retiring corporate and pension debt.
The market price of MEG equity is clearly illustrating that management is "worth" $46MM - $180MM of negative value. This is consistent with management's failures in just the past year. Financing fumbles on the part of management have cost nearly $30-$60MM to shareholders. DealTaker.com and other MEG web ventures will cost at least $10MM if not much more given the initial disclosure in the latest 8-K. With a potential break up value between 50-150% higher than current share prices, I would expect that every shareholder would support a full sale of the company and I once again encourage you to hire legitimate advisors in the media sector to fulfill your obligation to shareholders.
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