(Bloomberg) — After twice being rebuffed in his bid to compel Tegna Inc. to sell itself, Standard General’s Soo Kim can claim victory with a deal to buy the media company for $5.4 billion.
The agreement comes on the heels of another Standard General proposal last month to acquire the remaining shares the firm didn’t already own in the casino and entertainment company, Bally’s Corp., in a deal valued at about $1.6 billion.
The back-to-back moves are helping to cement the reputation of Kim, 47, as a turnaround expert who can spot and hopefully restructure those increasingly rare gems — undervalued companies.
His firm was a major player in the bankruptcy restructurings of American Apparel, Radio Shack and Young Broadcasting, which was later merged with Media General Inc.
Whether he’ll succeed with Tegna remains to be seen.
Spun off from Gannett Co. in 2015, Tegna owns 64 television stations in Denver, Seattle, Minneapolis and 48 other U.S. markets, as well as media properties such as the True Crime Network. The broadcaster managed to fight off Standard General as it unsuccessfully mounted two boardroom battles aimed at pushing the company to sell.
The proxy fights grew nasty at times, with Standard General accusing Tegna of fostering a culture of racial bias at its stations. Last March, the hedge fund also called for an investigation into a 2014 incident when Tegna Chief Executive Officer Dave Lougee mistook a Black media executive for a valet at a business luncheon. Lougee later apologized.
Kim said purchases like that of Tegna is what can be expected from the hedge fund in the future. In an interview, he said his firm is focused on mature, small-to-mid-sized companies that have plenty of upside that the market is overlooking.
“People have said valuations are high in the public markets. But not in the space I look,” Kim said. “It’s an interesting scenario where valuations are reasonable — if not cheap — for companies that I understand and businesses that require some change. I actually think it’s a wonderful time to invest.”
Apollo Global Management, which is financing Standard General’s takeover of Tegna, itself was close to buying the broadcaster in early 2020 before the pandemic upended the market and its plans.
Last summer, after losing his second proxy fight at Tegna, Kim reached out to Apollo to see if they might work together on a deal. At the time, rumors were circulating that media mogul Byron Allen was also kicking the tires. Apollo and Standard General agreed to join forces.
Kim said the negotiations teetered on the brink of falling apart several times before they managed to get the deal across the line last weekend.
The sticking points included who would assume the regulatory risk, the size of the termination fee, the deal’s structure and even who would be involved as buyers, people familiar with the matter told Bloomberg News.
Apollo’s majority ownership stake in competitor Cox Media Group gave rise to antitrust concerns if the private equity giant were to have control of both companies. As a result, the deal was structured in a way that will see Standard General hold substantially all the voting shares in the company while Apollo and its affiliates will receive preferred shares with no voting rights.
After the deal closes, possibly in the second half of this year, Cox Media Group will acquire Tegna’s stations in Austin, Dallas and Houston, Texas.
Standard General is far from a household name. But Kim has been a rising star in the hedge fund industry since co-founding Standard General 15 years ago.
He was born in South Korea before moving to Queens, New York, with his family when he was five. He attended Princeton University and cut his teeth on Wall Street on the trading desk at Bankers Trust Co.
Kim eventually moved to Och-Ziff Capital Management, where he was part of the team that launched its fixed-income business. From there, he co-founded the credit hedge fund, Cyrus Capital Partners, in 2005 before leaving to co-found Standard General two years later.
He acknowledges the difficulties ahead for Tegna. “Tegna is running smoothly from some perspectives but the reality is that the whole business needs to change somewhat and continue to evolve because a lot fewer people get their news from television.”
Steven Cahall, an analyst with Wells Fargo Securities, said the deal should be a win-win for Apollo and Standard General. He said broadcast assets have great free cash flows, which make them attractive to both strategic and financial buyers.
Apollo, meanwhile, was believed to be looking for a bigger station group as a partner for some of its legacy broadcast assets, Cahall said. “This deal seems to give everyone what they want.”
Deborah McDermott, Standard Media Group CEO, will become Tegna’s new CEO. She was on Standard General’s slate of director nominees during its first proxy battle with Tegna in 2020. Kim, who will become chairman, has a long history of working with McDermott dating back to her days as head of Young Broadcasting.
“Sometimes people go into acquisitions and crash and burn,” McDermott said. “We go in and look for the best out of that organization and blend the people who are there and find the best in it and fix the other stuff.”
Standard General’s offer for Tegna is a 39% premium to where the stock was trading before rumors of the deal broke last fall.
Kim’s approach at Bally’s isn’t that different. His offer to buy the casino operator’s shares came at about a 30% premium. Standard General is already Bally’s largest shareholder with a 21% stake in the company, and Kim has grown the business through acquisitions as its chairman.
Bally’s, which has a market value of roughly $1.9 billion, said Tuesday it had created a special board committee and hired financial and legal advisers to evaluate the non-binding proposal.
“Bally’s and Tegna have one very common denominator, which is their core businesses throw off a lot of earnings today. Whether it’s gaming or TV, they’re both license driven and there’s limited competition in every market,” Kim said. “But both of them face a little bit of uncertainty due to the internet.”
For Bally’s, it’s an aging customer base and online gaming, he said. For Tegna, it’s that those in the younger generation aren’t watching the 11 p.m. news the way their parents did, he said.
“So, how do these very strong but old franchises actually survive in the internet era?” Kim asked. “We think that injecting a level of technology and evolution into the business will be amazing.”
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