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InterMedia Made Two Tries to Best Kroenke’s Outdoor Channel Offer

But Tweaked Deals Couldn’t Beat Sports Giant’s All-Cash Proposal 3/22/2013 9:25 AM Eastern

InterMedia Partners went back to the negotiating table twice to try to salvage its deal to merge with Outdoor Channel earlier this month, but according to documents filed with the Securities and Exchange Commission late Thursday could not best the $227 million all-cash offer from Kroenke Sports & Entertainment.

Outdoor Channel had originally agreed to a $208 million merger deal with InterMedia back in November, which would have given Outdoor shareholders a mixture of $8 in cash for each of their shares and an interest in a combined publicly traded entity to be called InterMedia Outdoors Holdings. That agreement was headed toward the finish line when Kroenke lobbed in an unsolicited all-cash offer for Outdoor on Feb. 27, halting the process. Outdoor determined the Kroenke deal to be superior on March 8 and on March 13 said it had accepted the sports and entertainment giant’s proposal.

But that was not without first giving InterMedia the chance to increase its bid. According to the proxy statement filed March 21 with the SEC, InterMedia had increased its bid on March 7 to $8.75 per share in cash (up to $115 million) and half a share of InterMedia Outdoors (up to 34.8% of total shares) for each Outdoor share held. But several other sticking points – a reverse termination fee of $9 million, a limit on any damages to Outdoor of $25 million in the event of a breach of the deal, a $6.5 million termination fee payable by Outdoor if the deal were scrapped and a $2.5 million management advisory fee payable to InterMedia upon closing – were still intact.

When Outdoor’s board of directors informed InterMedia it still deemed the Kroenke Sports deal to be superior, InterMedia went back to the drawing board, coming up with a slightly different proposal on March 12. That proposal was essentially the same as the previous offer, except for the inclusion of one share of special preferred stock in the combined company. According to the proxy statement, the special preferred stock was valued at 50 cents per share and carried an 8% annual coupon, “payable only upon declaration by the board of directors of the combined company, compounded annually to the extent such coupon was not paid, and would be redeemable at any time at the company’s option, but in any event no later than 5.5 years following its issue date.”

That, too, proved to be insufficient to trump the Kroenke proposal.

The proxy also revealed that a private equity fund – called Party A in the proxy but later revealed to be UTR LLC – had proposed an all cash offer of $7.50 per share that was the front-runner, but was taken out of consideration after it could not provide information on its financial backers.

According to the proxy, Outdoor contacted a total of 85 parties (65 private equity firms and 20 strategic players) between August and November 2011, which led to confidentiality agreements with 29 parties and the receipt of seven indications of interest, according to the proxy. None of those parties submitted final proposals or continued significant discussions with Outdoor Channel.

World Fishing Network, the fishing channel 50% owned by Kroenke Sports, was one of the parties contacted early on. While WFN entered into a confidentiality agreement and conducted some due diligence on the channel, those “discussions did not lead to a proposal for a business combination,” according to the proxy.

 

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April