Media General’s Criticism of Harbinger’s Nominees is Laughable

| About: Media General (MEG)

Media General, Inc. (NYSE:MEG) is currently engaged in a proxy battle with activist hedge fund Harbinger Capital Partners, which reportedly holds about 18 percent of the Class A shares of MEG. Media General owns television stations, newspapers and some internet properties.

On March 19th, Media General filed a letter with the Securities & Exchange Commission that it sent to shareholders encouraging them to vote for the company board designees and not for Harbinger’s proposed nominees. Frankly, I find it extremely laughable.

In Media General’s criticism of Harbinger’s nominees (see below), the company seem all over the place. In one case, it says a nominee has too little experience as a director of a public company, in another it says he has too much. It harps on the fact that all three nominees have no ownership in the stock, but the three are being proposed by one of the largest shareholders in the company.

Additionally, as is usually the case with corporate management, the shares that Media General’s management own largely come from option grants, and not open market purchases. In fact, I can only find one transaction involving any member of management or the board buying open market shares in the past two years- not exactly a real confidence builder for shareholders.

Most of all, the criticism of Dan Sullivan is comical. Though I haven’t seen or spoken to him in at least five years, I know Dan Sullivan and have had business dealings with him in my career. He is a straight shooter and highly accomplished in the broadcast television industry. Media General criticizes Mr. Sullivan for being absent from the industry the past four years, but I would bet Dan Sullivan has forgotten more about the broadcast industry than most in it ever knew.

As for his degree, I really can’t see how that’s necessary for an executive with more than 30 years under his belt, but according to the proxy solicitation filed with the SEC by Harbinger on May 19th, it merely states he attended college, not that he graduated.

His complete bio from the Harbinger proxy solicitation follows:

For the past 30 years, Mr. Sullivan has worked in the television broadcasting industry holding various positions from account executive, sales manager, general manager, regional manager, founder and president of 3 large television groups. Mr. Sullivan has managed, owned or operated over 60 different television stations in the past 20 years.

Since 2004, Mr. Sullivan has been a private investor and consultant specializing in advising various equity funds on media investments and acquisition opportunities. From 1998 to 2004, Mr. Sullivan was the President and Chief Executive Officer of Quorum Broadcasting Company, Inc., a broadcasting company founded by Mr. Sullivan in connection with the acquisition of 16 television stations in 10 markets. From 1996 to 1998, Mr. Sullivan was the President and Chief Executive Officer of Sullivan Broadcasting Company, Inc., an owner/operator of broadcast television stations.

Mr. Sullivan does not presently serve as a director of any public company or registered investment company.

Mr. Sullivan attended the University of Tennessee.

Simply put, Dan Sullivan is known to have created significant returns for his investors, and he is exactly the type of individual to have on the board representing shareholder interests at Media General.

I really had no position on this dispute prior, but after reading these ludicrous comments by Media General it makes me seriously wonder why this management team and board are so afraid of expanding shareholder representation within the company. Anything that makes management and boards of directors completely accountable to their shareholders is a good thing in my opinion, and media companies that have not achieved results for their shareholders should brace themselves for much more of this type of activist activity to occur.

One only has to pull up a top 10 holders list on most broadcast companies to see that the activists are steadily increasing their positions in the sector across the board. I’ve heard one prominent broadcasting CEO refer to it as “the barbarians are at the gate”, but I think it could be exactly what the industry needs to push forward, and shareholders see some real returns going forward.

Sitting around and hoping for better times to come isn’t an option for management of these companies, and denying shareholders adequate representation isn’t the answer. The outcome of Media General’s proxy battle should give investors a good window into future activity like this in the sector.

Media General comments on Harbinger nominees:

In fact, our research indicates that the Harbinger nominees do not measure up to your Board’s nominees, or even to Harbinger’s own claims about them. Consider the following:

J. Daniel Sullivan

  • No newspaper or Internet experience
  • No apparent broadcast experience in the last four years
  • Two years ago, in connection with litigation in which Mr. Sullivan was backed by Harbinger and others in a failed plan to become the chief executive of Granite Broadcasting Corporation, a federal bankruptcy judge observed:

“It was also established that the last broadcast company operated by Sullivan had poor operating results, was overleveraged and was frequently in default under its credit facility.”

  • Owns no Media General stock

Mr. Sullivan also has a “resume problem.” In spite of Harbinger’s representation to the contrary in its January 24, 2008, letter to us (and filed with the SEC), Mr. Sullivan did not receive a degree from the University of Tennessee.

Eugene I. Davis

  • No newspaper or Internet experience
  • A “professional director” and regular Harbinger nominee to other companies’ boards. Research indicates that Mr. Davis currently serves on the boards of 12 public companies. In corporate governance parlance, Mr. Davis is already vastly “overboarded.”
  • In one of these companies (Salton (SFP)), Harbinger is a significant (92%) stockholder. Harbinger also previously had invested in at least two other companies where Mr. Davis is, or was, on the board (Seracare (NASDAQ:SRLS) and Oglebay Norton (OGBY.PK)), but these details were curiously omitted from Harbinger’s disclosure.
  • Harbinger also submitted Mr. Davis as a hostile board nominee last year in a proxy contest at Ryerson Inc. (NYSE:RYI), whose stockholders ultimately rejected Harbinger and Mr. Davis. Again, Mr. Davis’ history with Harbinger was not disclosed to you.
  • Owns no Media General stock

F. Jack Liebau, Jr.

  • No industry experience
  • No experience as a director of a public company

Disclosure: None

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