Hearst-Argyle Tries Private Route -- Again

While commenting late last month on a frustrating fourth quarter, Hearst-Argyle CEO David Barrett described the company's stock price as "unimaginably low." And Hearst Corp. is looking to capitalize on it. The diverse media company already owns 82% of Hearst-Argyle; it will make an offer mid-next month to take the remainder of the station group private at $4 a share.

The company made a similar offer less than two years ago at $23.50 a share, which was withdrawn after some opposition. The new offer is valued at $375 million. Hearst-Argyle's share price increased on news of the offer Wednesday, but only to three cents above the $4 bid price.

The $4.03 price is down from a 52-week high of $24.50 -- a sign of just how much investors have soured on the local station business as the advertising downturn has set in, particularly in the auto segment.

In a year with a Summer Olympics and presidential campaign, the station group -- which manages 29 station -- suffered a revenue decline and net loss in 2008. In addition to the low share price, Hearst Corp. may be emboldened in its bid by the willingness of large shareholder Private Capital Management to support the deal.

The firm is controlled by Bruce Sherman, who holds some 7 million shares and has indicated to Hearst Corp. that he backs the proposal. (Sherman is a one-time keen media investor who is now retiring after some errant bets.)

Hearst Corp. said it would not need to obtain any financing to execute the deal -- a benefit with the tight credit markets. After Hearst's 2007 offer to take the company private at a $23.50 share price was withdrawn, the company began to acquire shares and upped its stake to 82%.

The company said taking Hearst-Argyle private with its high level of debt would help the station group "more readily be able to navigate the troubled waters in which we find ourselves." A special committee of independent directors of the Hearst-Argyle board is expected to consider the offer and make a recommendation to shareholders.

But Hearst Corp. said executing the deal is not contingent on those directors' support. Hearst Corp.'s 2007 offer came at a time when the station business seemed to be on more solid footing, with attractive growth potential coming from retransmission consent dollars and multiplatform opportunities. That offer was valued at $600 million -- $225 million more than the current one.

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