• by David Goetzl  @dgoetzl, September 28, 2007

With Hearst-Argyle's stock trading 11% higher than an offer price from Hearst Corp. to buy out shareholders and take the station group private, a special committee of the H-A board predictably rebuffed that bid Thursday.

Analysts now expect Hearst Corp. to raise its bid above the $23.50 per share it's offered. How much is the question, of course--and Hearst Corp. could still walk away, or perhaps explore a third option to gain full control.

H-A operates 29 stations and owns a stake in a company that develops Web sites for local channels. The stock closed at $26.05 on Thursday. The stock price has risen since Hearst Corp. indicated it would make the offer, which became official Sept. 14, as investors looked to induce an increased offer.

If shareholders now follow the two-person special committee's recommendation and reject the offer--which is almost a foregone conclusion--they risk Hearst Corp. walking away and the stock plummeting below its pre-offer price.

However, Hearst Corp. has looked at taking H-A private since at least April 2006, and isn't likely to abandon its pursuit now after just one offer.

A report from Bear Stearns suggests a per-share price of $26.50 to $27 a share is more in line with H-A's value--still less than H-A's 52-week high.

Hearst Corp. owns about 74% of H-A's approximately 94 million shares and needs to acquire an additional 16% to get to the 90% it says it needs to take H-A private.

In addition to its stake in H-A, the privately held Hearst Corp. owns a portfolio of magazines and newspapers as well as new media ventures.

The H-A board's special committee is comprised of two independent directors, each of whom received $150,000 for evaluating the Hearst Corp. bid. Among the reasons for its rejection is a belief that the timing was intended to take advantage of Wall Street turmoil and a negative outlook for the local station business--both of which the special committee now believes have "improved" since word the offer was coming came down in late August.

The special committee's decision came a day after H-A announced it has reached a retransmission consent agreement with Cox cable, giving it payments for stations it runs in six markets, including a duopoly in Orlando. Cox is the country's third-largest cable operator. The prospect of increased retrans dollars, as well as a flood of political ad dollars next year, have been cited by opponents of the Hearst Corp. bid as reasons why the offer should be rejected.