Sugarman to Sell Stake Back to Media General
Foiled in a $1.6-billion takeover attempt on Media General last spring, Beverly Hills entrepreneur Burt Sugarman agreed Monday to sell back to the newspaper firm a 10% stake under his control.
Publicly traded Giant Group Ltd. and Barris Industries, which are controlled by Sugarman, are to receive $44 million in cash and a paper mill in Pomona for their 2.8 million shares of Media General Class A common stock.
The joint announcement put the value of the transaction at about $100 million. That is what the Sugarman firms’ stake was worth on the market just before the announcement, when Media General traded for $35.875 a share.
However, the Sugarman firms bought much of their stock just before last year’s market crash at an average of more than $40 a share, or about $110 million. The firms have previously taken writedowns on the investment.
Media General, which closed Monday at $36.25 a share on the American Stock Exchange, traded as high as $50 last spring after Sugarman offered to buy the company for $70 a share. Chairman D. Tennant Bryan and other members of his family, who control the Richmond, Va.-based company through its powerful Class B stock, refused to consider the offer. The effort collapsed when Sugarman lost a proxy fight to elect three members of the company’s board at its May 20 annual meeting.
An unrelated major move by Sugarman collapsed last July, when he and his associates backed out of an agreement to buy a 25% interest in the MGM unit of MGM/UA Communications from controlling shareholder Kirk Kerkorian for $100 million.
Industry analysts noted that Wall Street appeared to react favorably to Monday’s announcement, with stock prices rising for all three companies involved in the deal.
Nevertheless, analysts indicated that it was not clear if either side got an edge in the $56-million price for the newsprint mill, which processes recycled paper. Although the plant has been profitable in the past two years, some noted, newsprint prices may be peaking and the industry is cyclical.
Paper industry analyst Mark Kurland of Mabon, Nugent & Co. in New York concluded that the price for the mill “seems realistic.”
Media General owns 33 weekly Highlander and Golden West newspapers in Los Angeles and Orange counties, several television stations and cable TV systems, as well as daily newspapers in Richmond; Winston-Salem, N.C., and Tampa, Fla. The company also owns a paper mill in New Jersey and has interests in mills in Georgia and Mexico, which it said it plans to keep.
Media General spokesman Robert W. Pendergast said the parties agreed to sell the Pomona mill to a third party in the event its transfer is not approved by governmental entities.
The agreement includes a “standard” clause giving Media General the right to share in any profits if the Pomona mill is resold for more than $56 million. He also said Sugarman agreed to drop his suit challenging the company’s dual-class stock voting structure and to refrain from acquiring another stake in Media General for 20 years.
He said he did not know whether Sugarman intends for Giant Group and Barris to own the paper mill jointly. Barris holds about 70% of the Sugarman-controlled block of Media General stock and Giant Group the rest. Sugarman could not be reached for comment.
Barris produces movies, including a critically acclaimed new release, “Rain Man.”
