- The Washington Times - Tuesday, April 22, 2008

Shares of Media General Inc. shot up 8 percent yesterday as dissident investors stepped up the pressure before Thursday’s shareholder vote, when they hope to elect three of their own nominees to the board of the slumping newspaper publisher.

Media General publishes 25 newspapers, including the Richmond Times-Dispatch and its biggest paper, the Tampa Tribune. The Richmond company also owns 23 television stations and two advertising Web sites.

Hedge fund Harbinger Capital Partners, the company”s second-largest investor with an 18.2 percent stake, cited Media General’s recent widening loss as evidence that a turnaround is needed. In a letter Friday, Harbinger urged shareholders to ignore Media General’s “fear-mongering” and support their slate of board nominees.

“Management has been trying to convince you that you should be satisfied with the company’s operations over the last few years, also that management and the board have done their best with the newspaper, television and Web site assets they manage on behalf of their shareholders. But like us, you probably disagree or believe their best is simply not good enough,” New York-based Harbinger said in a Securities and Exchange Commission filing.

Shares of Media General closed up $1.20 at $15.35.

Last week, Media General said its first-quarter loss grew to $20.3 million (91 cents per diluted share) from $6.5 million (27 cents) a year ago, driven by weak performance of the company’s publishing division.

In particular, the company attributed much of the loss to lower advertising sales at the Tampa Tribune. The Florida economy has been hard hit by the housing crisis.

To cut costs, about one-half of Media General’s 1,300 employees based in Florida were given the option of taking a buyout. In addition, the company is selling five TV stations.

Those measures aren’t enough for Harbinger, which also has the backing of the company”s largest shareholder, high-profile media investor Mario J. Gabelli. His asset-management firm, Gamco Investors Inc., owns a 22 percent stake. In its letter to shareholders, Harbinger laid out several proposed steps for boosting the company’s shares. Among them: sell the company’s Internet advertising properties, tie management compensation directly to creation of shareholder value, reduce dividend to pay down debt, and pursue cash from cable operators for TV station content.

Harbinger is waging a similar fight for board representation at New York Times Co., in which it has also accumulated a substantial stake. New York Times’ shareholders vote today.

Harbinger’s nominees garnered support among two major proxy advisers, ISS Governance Services and Glass Lewis. Proxy advisers provide recommendations on how large shareholders should vote. However, Proxy Governance has come out in favor of Media General.

On a conference call with investors and analysts last week, Media General President and Chief Executive Marshall N. Morton said he disagreed with the proposals but promised to work with Harbinger’s nominees if they are elected.

Harbinger’s board nominees are broadcast executive Daniel Sullivan, investment manager Jack Liebau and consultant Eugene Davis. They would replace: Charles A. Davis, chief executive of Stone Point Capital; Rodney A. Smolla, dean of the Washington & Lee University School of Law; and Walter E. Williams, a George Mason University economics professor.

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