Wall Street To Hearst Corp.: Raise Your Price

Momentum continues to build on Wall Street for Hearst Corp. to increase its offer price to buy out shareholders and take the Hearst-Argyle station group private. Hearst Corp. has offered $23.50 a share, but H-A's stock continues to trade at a level that's more than $2 a share higher.

By bidding up the stock--which has hit as high as $26-plus since the offer came through--investors are hoping to persuade Hearst Corp. to boost its offer. Shares closed at $25.65 Tuesday.

Privately held Hearst Corp. has said the offer is good until Oct. 12, although it left open the possibility of extending the deadline--a likely signal that it is unwilling to walk away without a deal.

The company, which already owns 74% of the station group, needs 16% of shareholders to accept an offer, allowing it to reach the 90% it needs to take H-A private. Persuading Florida-based Private Capital Management, which owns about 11% of the approximately 94 million shares, would help.

Regarding another deadline, the Hearst-Argyle board is expected this week to urge shareholders to reject the Hearst Corp. offer. The board has promised to make a recommendation within 10 business days after Hearst Corp.'s Sept. 14 official bid.



Multiple class-action suits have been filed looking to block a Hearst Corp. buyout--and one institutional shareholder, with a relatively small 90,000 shares, has urged the H-A board to reject the offer. In a report issued Tuesday, Bear Stearns analyst Victor Miller said H-A's stock could be worth as much as $27 per share, while indicating that he expects Hearst Corp. to up its offer and a deal to close by Thanksgiving. Miller suggested that H-A has significant upside via increased retransmission consent dollars, especially as telco TV providers look to enter new markets and aggressively compete with cable and satellite operators.

A previous report by Gabelli & Co. suggested that H-A stock would hit $32 a share in 2008, helped by a flood of political ad dollars from Presidential and other campaigns, and a $110 million reduction in debt.

Among the 29 stations H-A operates are the ABC affiliates in Manchester, N.H. and Boston--both of which are expected to be recipients of a boatload of dollars from White House candidates up to the first-in-the-nation New Hampshire primary in January. H-A also operates the CBS affiliate in Des Moines, Iowa--well-positioned to do the same up through the Iowa caucus, which kicks off Presidential voting just before N.H.

Looking toward November 2008 and the general election, H-A has a duopoly in the Orlando market, perhaps the single most sought-after DMA for Presidential candidates to win. The market sits in the heart of the delegate-rich battleground state of Florida, and is believed to be loaded with swing voters.

Much has been written about a possible downturn in the local station business with the potential for automakers to reduce ad budgets and ratings for local news declining in the face of Internet competition, but the Gabelli & Co. report said "at a minimum Hearst's offer affirms the value inherent in over-the-air television broadcasters."

In a letter to the H-A board as Hearst Corp. signaled its intent to make the $23.50-a-share offer, CEO Victor Ganzi wrote: "The competitive demands of the TV broadcasting industry and changes in the broader media industry, when balanced against the pressures on a public company to deliver short-term results, have convinced us that private ownership of Hearst-Argyle is desirable and will assist Hearst-Argyle in attaining its strategic and business objectives."

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