CLICK HERE to download Cove Street Capital’s October 2013 Strategy Letter, Number 14, “Steve Jobs Didn’t Give a *!@% About the Debt Ceiling”
CLICK HERE to download Cove Street Capital’s August 2013 Strategy Letter, Number 13, “Who Are You Going to Believe—These Non-GAAP Numbers or Your Lying Eyes?”
(Reprint) RICHMOND, Va., June 6, 2013 /PRNewswire/ — Media General, Inc. (NYSE: MEG) and privately held New Young Broadcasting Holding Co., Inc., both local broadcast television and digital media companies, today announced a definitive agreement to combine the two companies in an all-stock merger transaction. The new company will retain the Media General name and will remain headquartered in Richmond, VA.
Media General owns 18 network-affiliated stations, and Young owns or operates 12 network-affiliated stations. The combination will create a company with 30 stations operating in 27 markets, reaching 16.5 million, or 14%, of U.S. TV households. On a pro forma basis, 2012 revenues were $605 million, including approximately $115 million of political revenues.
The new company will have a strong balance sheet, including significant tax carryover net operating losses that will survive the merger, and an enhanced credit profile, creating opportunities to refinance existing debt at a significantly lower cost of capital. The merger will be accretive to free cash flow in the first full year. The companies have identified $25-30 million of operating and financing synergies.
The balance of network affiliations will include CBS (11), NBC (9), ABC (7) Fox (1), CW (1) and MNT (1). Sixteen of the 30 stations are located in the Top 75 DMAs. The new company will be more geographically diverse and will have a presence in more markets that generate strong political revenues. Its increased size will enhance its ability to participate in retransmission revenue growth, share growth of national and digital advertising, and syndicated programming purchasing.
CLICK HERE to download Cove Street Capital’s May 2013 Strategy Letter, Number 12, “Harleys and Leather Jackets”
by Eugene Robin | Research Analyst, Cove Street Capital
I’d like to share with you a great book on the basic mathematics of the stock market written by John Allen Paulos that has a section on the efficient market. Briefly, if investors believe in the Efficient Market Hypothesis (EMT) then they believe that the market efficiently incorporates all old and new pieces of information and thus the quest to beat the market is a losing proposition and thus everyone should just buy index funds. But, if enough people believe that the market is efficient then no one will engage in active management, thereby decreasing the overall efficacy of the now not-so-efficient market by slowing the diffusion of information into market prices. Therefore, if enough people actually believe that the market is efficient then that belief actually ensures the falsity of the theory itself, ergo, a paradox forms.
Why am I mentioning this? After recently watching a PBS documentary where Vanguard’s John Bogle espoused the glories of the ETF revolution, I began to think about the actual effects of ETFs on active managers. It’s hard to argue that Bogle is entirely wrong in his assault against the traditional active management industry. read more…
This past weekend’s trek to Omaha for the Berkshire Hathaway annual meeting represented the fifth consecutive time I have ventured to see the Oracle of Omaha and the man they call Charlie share their wisdom. Sorry folks, I didn’t take notes from the meeting this year. I have decided to pass that torch along to the next generation of note takers. However, the upshot of not taking notes is that I was able to absorb more of what was said in real time. I am sure that a comprehensive set of notes will show up on the internet in no time but in the meantime I wanted to share a few of my takeaways:
- While the idea of having a short seller ask questions was certainly compelling, the execution was lackluster. Unfortunately, it felt as though Doug Kass was far more concerned with promoting his own firm than asking tough questions. At one point Munger even joked that he could make a certain short point better than Kass was. Accordingly, my personal preference for subsequent years would be to have someone who knew the company really well and who owned the stock play the devil’s advocate. read more…
Our premise is simple: we bought Tessera because the stock was cheap and we received nearly free optionality on either the development of a new technology or improvement in the managing of the core business.
In a very short period of time, the management team members proved themselves to be some combination of incompetent, careless or clueless. We have been BLESSED with the entrance of what appears to be a competent group of investors—Starboard Value—who have experience in real activism and have in short order produced the departure of the CEO and most of the Board, a nearly complete makeover of the Board (proposed) and the announcement of a restructuring plan that should radically cut costs and shift capital allocation to enhance profitability and returns. read more…
Under normal circumstances, the prospect of leaving sunny Southern California to travel to a place where the day-time temperature encourages the wearing of fur is not particularly appealing. But I decided this year to make the slog to attend Fairfax Financial’s annual meeting in Toronto. Prem Watsa, the Chairman and CEO of Fairfax, has the reputation of being the Warren Buffett of Canada as he has modeled Fairfax to be similar to Buffett’s Berkshire Hathaway in terms of structure and investment approach. Like Buffett, Watsa measures success by comparing the yearly percentage increase in book value to the return of the S&P 500. Like Berkshire Hathaway, Fairfax has a decentralized structure whereby the insurance company presidents and the leaders of the non-insurance operating businesses have a lot of autonomy. This approach has helped Watsa and Fairfax generate substantial wealth for its long-term shareholders, as book value per share has increased from less than $2 twenty-seven years ago to close to $400 today.
CLICK HERE to download Cove Street Capital’s March 2013 Strategy Letter, Number 11, “Call Him Ishmael”