Nexstar Media Group (NASDAQ:NXST) is a television broadcast company operating in medium-sized markets in the United States. About a year ago, the company entered into a drawn out, contested merger process with Media General, which resulted in significant share pressure from merger arbitrage activity. This selling pressure created an attractive entry price for the stock equating to a valuation with a 20+% free cash flow yield. The company completed the merger in early 2017 and has now significantly increased its scale and reach. Management is respected as a strong operator and was able to exceed expectations in 2016 in spite of disappointing political advertising revenues for the industry as a whole. Nexstar can now finally commence on realizing the meaningful synergies from the merger, while taking advantage of their increased bargaining power with distribution partners. The proactive manner in which the company undertook the transformative merger has been viewed favorably by the market, especially as further speculation around industry consolidation heats up with the proposed deregulatory plans of the new FCC administration. In the meantime, Nexstar’s valuation remains attractive, with a free cash flow yield in the high teens. The company has ample opportunity to reduce debt, fund further M&A, and continue to return capital to shareholders through dividends and share buybacks.
From the Keeley Small Cap Value Fund first quarter 2017 commentary.
