Hearst needs a re-write on TV takeover

By Gary Jacobson

October 1, 2007 at 7:55am

TV can be a goofy business, but this couldn’t be the script the boys in Hearst Tower had in mind when they offered $600 million a few weeks ago for the small piece of Hearst-Argyle Television they don’t already own.

A special committee of Hearst-Argyle directors advised against the deal last week, calling it “inadequate” and saying it is “not in the best interests” of stockholders, other than Hearst.

That’s the same argument made by nine class-action lawsuits filed against Hearst-Argyle and Hearst Corp. since the buyout offer was made Aug. 24.

The stock market certainly agrees. Hearst’s tender offer is $23.50 a share for the nearly 27 percent of Hearst-Argyle shares held by others. The stock closed Friday at about $26.

Privately held Hearst Corp., founded by legendary newspaperman William Randolph Hearst, is one of the nation’s largest media companies. Based in New York City, it owns newspapers (including the San Francisco Chronicle and Houston Chronicle), magazines (Cosmopolitan, Esquire, O), interactive media and 20 percent of ESPN.

Hearst-Argyle owns 26 TV stations in markets reaching about 18 percent of the nation’s households. Stock analysts say the company should benefit by record spending on political advertising and by new retransmission agreements for its standard and high definition TV signals. Some analysts value Hearst-Argyle stock at $28-$32 a share.

Hearst-Argyle detailed the takeover saga, including information on the lawsuits, in a long filing with the SEC last week. The filing said:

  • In April 2006, at Hearst’s request, Hearst-Argyle executives first prepared a takeover scenario. At the time, the stock traded at $23.29 a share. Highlighted potential buyout prices ranged from $26.16 to $30.29.
  • Independent Hearst-Argyle directors David Pulver and Caroline Williams are each being paid $150,000, plus expenses, to be the sole members of the special committee considering the offer.
  • The special committee believes 2008 could be stronger financially than the company forecasts.
  • Pulver, Williams and director Bob Marbut do not intend to tender their shares to Hearst Corp.
  • Directors Frank Bennack Jr., John Conomikes, Victor Ganzi, George Hearst Jr., William Randolph Hearst III and Gilbert Maurer do intend to tender their Hearst-Argyle shares. Each is also a director of Hearst Corp. Ganzi is Hearst’s CEO.
  • One name conspicuously absent from the lawsuits is that of Florida investor Bruce Sherman. As of April, his Private Capital Management owned 8.4 million Hearst-Argyle shares. Sherman is the investor who put newspaper publisher Knight-Ridder in play, leading eventually to the sale to McClatchy.

Some of the lawsuits question the independence of Pulver and Williams. Both have been directors of Hearst-Argyle and its predecessor since 1994 and are included in the company’s medical insurance plan.

Pulver runs an investment company and is chairman of Colby College’s investment committee. He received $145,461 in compensation from Hearst-Argyle last year.

Williams, who works with the Nathan Cummings Foundation, received $140,961 in compensation from Hearst-Argyle last year. One lawsuit said the Cummings Foundation works frequently with the William Randolph Hearst Foundations.

Some of those filing the lawsuits worry that Hearst is holding so many cards that it could still force the transaction, leaving those who didn’t go along with illiquid shares.

As they say on TV, stay tuned.

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