Note 2 - Mergers and Acquisitions

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 2: Mergers and Acquisitions

Pending Merger with LIN Media LLC

In March of 2014, the Company and LIN Media LLC (“LIN”) announced an agreement to combine the two companies under a newly formed holding company to be named Media General and headquartered in Richmond, Virginia. This agreement was amended by the parties in August of 2014. Under the amended merger agreement, LIN shareholders are to receive consideration of cash ($763 million in the aggregate) and shares of voting common stock (approximately 38.8 million shares in the aggregate). In addition, each outstanding share of voting common stock and non-voting common stock of Media General will be converted into one share of voting common stock or non-voting common stock of the new holding company. As described further below, the Company and LIN have agreed to divest stations in certain markets in order to obtain regulatory approval for the transaction. Following the merger and the divestitures, the Company and LIN will own or operate 71 stations across 48 markets. The transaction has been approved by both the Media General Board of Directors and the LIN Board of Directors, the Department of Justice, and the shareholders of both companies. As set forth in the merger agreement, the closing of the transaction is subject to the satisfaction of a number of conditions including, but not limited to, the approval of the Federal Communications Commission (“FCC”) and certain third party consents. The transaction is expected to close in the fourth quarter of 2014. The Company incurred $2.7 million and $9.6 million of investment banking, legal and accounting fees and expenses in the three and nine months ended September 30, 2014, respectively, related to the pending merger with LIN.

In order to obtain regulatory approvals for the transaction, the Company and LIN and their respective subsidiaries, as applicable, entered into asset purchase agreements for the sale of the Company’s WJAR station in Providence, RI to subsidiaries of Sinclair Broadcasting Group, Inc. (“Sinclair”),for approximately $120 million, LIN’s WLUK and WCWF stations in Green Bay, WI, for approximately $70 million, and certain of LIN’s assets associated with the WTGS station in Savannah, GA for $17.5 million to Sinclair, asset purchase agreements for the sale of the Company’s WVTM station in Birmingham, AL to subsidiaries of Hearst Television Inc. (“Hearst”), for approximately $58 million and LIN’s WJCL station in Savannah, GA for approximately $4.5 million to Hearst, and an asset purchase agreement for the sale of LIN’s WALA station in Mobile, AL for approximately $86 million to Meredith Corporation. In addition, Mercury New Holdco, Inc., a wholly-owned subsidiary of the Company, also entered into asset purchase agreements to purchase the KXRM and KXTU stations in Colorado Springs, CO for approximately $53.1 million and the WTTA station in Tampa Bay, FL for approximately $40 million from subsidiaries of Sinclair. The Company expects that the purchase/sale of these stations will occur substantially concurrent with the closing of the transaction with LIN. It is intended that the acquisitions of the KXRM and KXTU stations in Colorado Springs, CO and the WTTA station in Tampa Bay, FL will be structured as “like-kind exchanges” under Section 1031 of the Internal Revenue Code for certain of the stations being divested.

The Company is finalizing details so that a portion of the transactions above and the acquisition of WHTM qualify as “like-kind exchanges” under Section 1031 of the Internal Revenue Code. The Company expects to use the remainder of the proceeds to reduce indebtedness.

Acquisition of WHTM

On September 1, 2014, the Company completed the acquisition of WHTM, a television station located in Harrisburg, Pennsylvania for approximately $83.4 million, including assumed liabilities. This transaction was accounted for as a purchase and has been included in the Company’s consolidated results of operations since the date of acquisition.

The initial allocated fair value of acquired assets and assumed liabilities is summarized as follows:

(In thousands)
Property and equipment	$	3,517
Broadcast licenses		31,200
Definite-lived intangibles		28,300
Goodwill		20,357
Other assets		380
Other liabilities		(354	)
Total	$	83,400

The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of approximately $21.9 million and advertiser relationships of $6.4 million. These intangible assets will be amortized over their weighted-average estimated remaining useful lives of 15 years for network affiliations and seven years for the advertiser relationships. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.

The initial allocation presented above is based upon management’s preliminary estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Network affiliations and advertiser relationships were primarily valued using an excess earnings income approach. The broadcast licenses represent the estimated fair value of the FCC license using a “Greenfield” income approach. Under this approach, the broadcast license is valued by analyzing the estimated after-tax discounted future cash flows of an average market participant. Property and equipment was primarily valued using a cost approach. Acquired program license rights will be amortized to operating expense over the estimated broadcast period in an amount equal to the relative benefit that is expected to be derived from the airing of the program, or on a straight line basis over the life of the program where the expected useful life is one year or less.

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed.

The initial purchase price allocation is based upon all information available to the Company at the present time and is subject to change, and such changes could be material.

During the third quarter of 2014, the Company incurred approximately $0.1 million of transition related expenses related to the WHTM acquisition.

Legacy Media General Merger

As described in Note 1, Legacy Media General and Young were combined in an all-stock merger transaction on November 12, 2013. The merger was accounted for as a reverse acquisition with Young as the acquirer solely for financial accounting purposes. Accordingly, Young’s cost to acquire Legacy Media General has been allocated to the acquired assets, liabilities and commitments based upon their estimated fair values. The pre-merger operations of Legacy Media General consisted of 18 network-affiliated broadcast television stations (and associated websites) primarily located in the southeastern United States. The purchase price of Legacy Media General was calculated based on the number of unrestricted Class A and B common shares outstanding (27,985,795 in aggregate) immediately prior to the merger multiplied by the closing price on November 11, 2013 of $15.06. In addition, the purchase price included the portion of performance accelerated restricted stock and stock options earned prior to the merger ($12.7 million in aggregate). The allocated fair value of acquired assets and assumed liabilities is summarized as follows:

(In thousands)
Current assets acquired	$	89,425
Property and equipment		183,362
Other assets acquired		24,563
FCC broadcast licenses		359,400
Definite lived intangible assets		214,080
Goodwill		487,223
Deferred income tax assets recorded in conjunction with the acquisition		49,725
Current liabilities assumed		(66,372	)
Long-term debt assumed		(701,408	)
Pension and postretirement liabilities assumed		(165,904	)
Other liabilities assumed		(39,908	)
Total	$	434,186

Current assets acquired included cash and cash equivalents of $17.3 million and trade accounts receivable of $64.4 million.

The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $154.7 million, advertiser relationships of $58 million and favorable lease assets of $1.4 million. These intangible assets will be amortized over their weighted-average estimated remaining useful lives of 15 years for network affiliations, seven years for the advertiser relationships and 10 years for favorable lease assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.

The allocation presented above was determined using similar techniques and methodologies as described for WHTM. Approximately $164 million of the goodwill recognized is expected to be tax deductible.

The Company incurred $0.8 million and $3.5 million of legal, accounting and other professional fees and expenses in the three and nine months ended September 30, 2014, respectively, related to the Legacy Media General merger. The Company incurred $3.2 and $7.6 million of legal, accounting and other professional fees and expenses in the three and nine months ended September 30, 2013, respectively, related to the Legacy Media General merger.

Net operating revenues of Legacy Media General included in the consolidated statements of comprehensive income, were $94 million and $277 million, respectively, for the three and nine months ended September 30, 2014. Operating income of Legacy Media General included in the consolidated statements of comprehensive income, was $13.1 million and $27.2 million, respectively, for the same periods.

The following table sets forth unaudited pro forma results of operations for the three and nine months ended September 30, 2013, assuming that the Legacy Media General merger, the consolidation of the Shield Media entities described in Note 3 and the refinancing described in Note 4, occurred as of January 1, 2013:

	Three Months		Nine Months
	Ended		Ended
(In thousands, except per share amounts)	September 30, 2013		September 30, 2013
Net operating revenue	$	132,586	$	394,727
Income (loss) from continuing operations		3,873		7,177
Income from continuing operations attributable to Media General		4,213		7,484
Income from continuing operations per share - basic and assuming dilution		0.05		0.08

The pro forma financial information presented above is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what the combined company’s results would have been had the transactions occurred as of January 1, 2013. The pro forma amounts include adjustments to depreciation and amortization expense due to the increased value assigned to property and equipment and intangible assets, adjustments to stock-based compensation expense due to the revaluation of stock options and performance accelerated restricted stock and the issuance of deferred stock units to certain executive officers, adjustments to interest expense to reflect the refinancing of the Company’s debt and the related tax effects of the adjustments. Pro forma results for the three and nine months ended September 30, 2013, exclude merger-related expenses for the combined company of $4.5 million ($1.2 million of which was incurred by Legacy Media General) and $16 million ($8.4 million of which was incurred by Legacy Media General), respectively.