Sugarman Takes Bid to Media General Holders

All was quiet on the takeover front Thursday for Media General Inc. in its battle with Beverly Hills producer Burt Sugarman. The stillness on the eve of the company’s annual shareholders meeting stood in contrast to the heated public exchange of charges and countercharges from the two sides in recent days.

Sugarman has come to Richmond--Media General’s home base--to try to wrest three positions on the firm’s board from the family controlled newspaper and television empire. One of his top guns in the proxy fight is Harold C. Simmons, a Dallas businessman with a reputation as a corporate raider.

The board seats could become a beachhead to advance Sugarman’s $2-billion merger proposal for the company.

According to some Wall Street analysts, a Sugarman victory at today’s meeting could put him in a position to harass the management on various issues, and this in turn might force the founding Bryan family into a restructuring or sale of the company.

Matter of Interest

Following this scenario, a restructuring would push the value of Media General’s shares considerably higher than their present market price. Or Sugarman might be able to acquire some of the company’s assets if a larger firm should take over the company.

Opposing Sugarman in the proxy battle for the three seats is Chairman D. Tennant Bryan and his son, Vice Chairman J. Stewart Bryan III. The Richmond newspapers that are the firm’s core have been controlled by their family for a century.

The Bryans and their relatives now occupy the other six positions on the board.

And the way they control the firm makes the fight a matter of interest among several larger media companies (including the publishers of the Los Angeles Times, the Washington Post, the Wall Street Journal and the New York Times).

Through ownership of 71% of Media General’s 558,586 shares of Class B stock outstanding, the Bryan family has a built-in power that far overshadows the 28 million Class A shares outstanding. That’s because the company’s charter gives the Class B stock the right to elect 70% of the board. Class A shares, which are publicly traded, elect 30% to the nearest whole number, in this case three.

Strenuous Lobbying

Sugarman has asserted that the Media General situation is unique in that the Bryan family exercises control with far less of the total stock than founding families commonly do at other dual-class media concerns. In an effort to force a vote of the combined classes on his merger proposal, Sugarman sued in federal court in Virginia, but he lost a preliminary ruling April 27.

Major players in this proxy fight are the institutions that own or manage large chunks of Media General stock, totaling as much as 50% of the company’s outstanding Class A shares.

Arbitragers, or professional speculators, own another 10% to 20%, according to a report two weeks ago by Charles F. Leeds, a takeover specialist at Balis Zorn Gerard, a New York investment firm.

For many weeks, professional money managers have been the object of strenuous lobbying on behalf of both Sugarman and General Media. Sources say some institutions have changed their early votes by sending in additional proxy cards, which can be done right up to the time of the meeting.

Because of the shifting situation, analysts this week were loath to predict the outcome of the proxy battle. Earlier, even some analysts backing Media General management were forecasting that Sugarman would win because institutions would stand a better chance of short-run stock profits if he did prevail.

In his report, Leeds observed that Chairman Bryan could “tough it out” and maintain control with Sugarman on the board, or he could remain in control with a leveraged buyout by management. In the latter case, Leeds said, shareholders could receive substantially higher prices than those now prevailing in the market.

Avoided Interviews

Wall Street is still discounting Sugarman’s long-term chances, a fact underscored by Media General’s market price, which has lagged far behind the $70 a share proposed by Sugarman. (Media General’s Class A stock closed Thursday at $42.50, up 25 cents a share, on the American Stock Exchange.)

While Sugarman and the Bryans have avoided interviews, the battle continued this week through proxy materials, newspaper advertising and press releases.

In a full-page ad in the Wall Street Journal on Monday, Media General told shareholders that Sugarman’s sweetened merger offer of $70 a share--up from the original $61.50--was an attempt to win votes in the proxy contest and divert attention from “the issues at hand,” adding:

“As a result of the federal court ruling, regardless of whether Sugarman and his dissident slate are elected, there is no chance for a Sugarman merger proposal to succeed unless the Bryans agree. The Bryans have repeatedly rejected the Sugarman proposals. A vote for Sugarman will not result in a merger.”

Then Media General announced late Tuesday that investment bankers for Sugarman and the company met Monday in New York and talked over a “Sugarman proposal” for settling the proxy fight. Sugarman would swap his 10.1% stake in Media General for 43% of the firm’s cable television operations, according to the company, which denounced the idea as “greenmail.”

May Address Holders

In a press release, Sugarman denied that he himself had made such an offer. He in turn released correspondence showing that Media General has had under consideration for two weeks a recapitalization proposal as a means of bringing peace. Under the plan, the company would spin off its broadcasting and cable operations into a separate company, in which Sugarman would own a 27% interest.

That plan was proposed by Nicholas Chimicles, a lawyer for two Media General stockholders who are suing the company over its proxy material in the Sugarman battle. The company replied to Chimicles on May 9, saying that it was “carefully considering” his suggestions and that the board would discuss the subject further at its May 27 meeting.

However, Media General President James S. Evans said Wednesday that management would recommend against the proposal. Chimicles had said the plan would allow the Bryans to keep control of the newspapers and at the same time increase the value of public shareholders’ stock in the two firms to about $58.50 a share.

Sugarman’s own proxy material has harped on the message of maximizing stock values for the shareholders, and he has continued to lobby the institutional investors. He also reportedly is prepared to address Media General’s shareholders from the floor of today’s meeting, since he is not expected to be invited to the podium.