Please ensure Javascript is enabled for purposes of website accessibility

Why Meredith Corporation Shares Jumped 11.7% on Tuesday Morning

By Anders Bylund - Sep 8, 2015 at 11:44AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Media General is buying the company in a $3.1 billion deal, financed by $2.8 billion of fresh debt.

MDP Total Return Price Chart

MDP Total Return Price data by YCharts

What: Shares of Meredith Corporation (MDP) jumped as much as 11.7% higher on Tuesday morning. Fellow media properties operator Media General (NYSE: MEG) announced that it is buying Meredith in a $2.4 billion cash-and-stock deal. Media General stock rose as much as 8.9% on the same news, before falling back to a more modest 2% gain. By 11:40 a.m., MDP stock was up 9.6% from the previous close.

So what: If approved by shareholders and regulatory authorities, this merger will create the third-largest owner of local network affiliates in America. Together, the new Meredith Media General business will reach about 30% of American households. The companies hope to boost their current combined cash flows by roughly 10%, thanks to synergies, other cost-cutting opportunities, and cross-selling tactics.

Now what: Meredith shareholders will receive about 67% of their payment in cash, and the rest in shares of the new company. Media General owners simply get one share of Meredith Media General for each of their old stubs. Including Meredith's $772 million of net debt balances, the total enterprise value of this merger will land at $3.1 billion.

To finance this merger of equals, Media General has secured $2.8 billion of fresh debt from two large banks.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

In some markets where both of these companies already own broadcast TV stations today, a few stations will be sold to other companies in order to meet regulatory requirements. This includes areas such as Portland, Ore., Nashville, Tenn., and Springfield, Mass.

Media General is known for its healthy portfolio of digital media channels, including syndication powerhouse Federated Media. Meredith brings many fast-growing media markets to the table, alongside a strong focus on content and products designed for female audiences. Together, the management teams hope to see these strengths combine and create brand-new business opportunities.

Both stocks have struggled in 2015; As of Friday night, Media General shares were trading more than 33% below last December's pricing. Will this deal's economies of scale put a stop to that painful slide? That will depend on how effectively the new company can use its established digital business channels.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meredith Corporation Stock Quote
Meredith Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.