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Sportsman Bags Outdoor in Merger

Networks to Operate Separetely, With Synergies 11/18/2012 7:00 PM Eastern

InterMedia Partners’ Sportsman Channel bagged a new hunting buddy last week, agreeing to merge with Outdoor Channel Holdings in a deal that will combine the two largest players in the outdoor lifestyle programming space into a single entity, Inter- Media Outdoor Holdings.

The deal will give each programmer increased reach and added financial flexibility to address the growing hunting, fishing shooting and outdoor living market. More than 82 million Americans spend $108 billion annually on hunting, fishing, bird-watching and other wildlife-related activities, according to the U.S. Fish & Wildlife Service.

“It is just a vast, huge vertical market of people that celebrate and enjoy this lifestyle,” Sportsman Channel CEO Gavin Harvey said in an interview last week. “We’re doing it because the demand is there, and we believe there is huge growth ahead.”

IMOH will continue to operate both channels after the deal is closed in the first quarter of 2013. Harvey will take over the day-to-day operations of the channels as president, television and networks for IMOH. Outdoor Channel CEO Tom Hornish will continue in that role in the new entity, as will current chief financial officer/ chief operating officer Tom Allen. InterMedia Outdoors CEO Jeff Paro will be president, publishing, integrated media and branded content. Inter Media managing partner Peter Kern will serve as executive chairman of IMOH.

InterMedia includes InterMedia Outdoor, a stable of 15 popular hunting and fishing magazine like Guns & Ammo, Petersen’s Hunting and In-Fisherman.

The combined entity will have annual revenue of about $178 million and combined cash flow of about $35.2 million.

The combination gives Inter- Media access to a bigger subscriber base — Outdoor is available in 38 million homes, compared to 30 million for Sportsman Channel — while Outdoor gets access to a more diverse media company with 20 established websites and a loyal fan base in magazines and television.

The deal also gives both channels added firepower in producing additional programming to help boost distribution and a future exit strategy by creating a more attractive target for potential buyers, Noble Financial media analyst Michael Kupinski said.

“Ultimately, you want to have an exit strategy,” Kupinski said. “To merge with what I believe is the premier channel in the space is one way to do that.”

Hornish wouldn’t talk about exit strategies, but said Outdoor had already planned to expand its programming lineup, and this deal will help it along that route. In addition to better programming, he said, the company could boost carriage by offering economic incentives to distributors that are carrying both channels in the form of lower fees.

“There may be a way that we can go in and say, ‘This will be a win-win. If you give us broader distribution, maybe we can save you some money in the aggregate between the two channels,’ ” Hornish said.

Outdoor Channel currently charges an average of four cents per month per subscriber, while Sportsman Channel attracts an average monthly fee of three cents per customer, according to SNL Kagan.

Hornish added that the deal will obviously have cost synergies, but said those specifics have yet to be worked out.

“Running two channels, there are certainly redundancies, but we haven’t really got into details as to just exactly how much or which side would have those synergies,” Hornish said. “We think as we come together and do the integration, that process and the numbers will kind of fall out themselves.”

Harvey said the company hasn’t mapped out its overall programming strategy yet, but added that the combination of both channels’ vast content libraries with InterMedia’s publishing and online assets and production capabilities could lead to video-on-demand offerings and specialty content for distributors that want to launch new products.

“There is just an incredible breadth of tools that we have to create value, value, value for distributors,” Harvey said.

Shareholders will have the option of accepting $8 per share in cash for their Outdoor Channel shares — an 11% premium to their close Nov. 15 — or one share of the new entity for every Outdoor share they own, according to the deal. The two companies have set aside $115 million in cash to distribute to shareholders. In addition, Outdoor also declared a special one-time dividend of 25 cents per share in cash that will be distributed on or about Dec. 7 to shareholders of record as of Nov. 27. After the deal closes, Outdoor shareholders are expected to control about 32.4% of the new entity, with InterMedia controlling the remaining 67.6%.

September