The announcement last week that LIN Media’s board had authorized a stock buyback of up to $25 million was welcomed by Wells Fargo Securities analyst Marci Ryvicker. “Clearly this is a positive as TVL was one of the few TV companies not returning capital [to shareholders] yet.” However, she found the announcement to be a surprise for two reasons.
“Surprise No. 1 is timing. We asked management if capital returns were a when or an ‘if’ on their earnings call (11/3). In response, management was clear that this is a ‘when’ and most likely would occur when leverage dropped to between 3.0-3.5x. At the end of Q3, TVL was levered at 4.2x – our model had them de-levering to their ‘comfort zone’ in Q3 2012,” Ryvicker told clients. So the move came six months to a year earlier than she had expected.
“Surprise No. 2 is share repo versus dividend. In addition to the early timing, we also would not have expected to see a share repurchase plan instead of a dividend, given the relative value of the repurchase plan to TVL’s market cap (14% of its $185MM market cap) and float (24% of its 31MM float shares) – both based on Friday’s [11/4] close. We do think that a share repurchase announcement provides more flexibility,” Ryvicker explained.
And, since LIN CEO Vince Sadusky and CFO Rich Schmaeling presented at the Wells Fargo Securities Technology, Media & Telecom conference, Ryvicker got an opportunity to quiz them about the move.
“Management stated that they chose to utilize a share repurchase program rather than a recurring dividend because it believes that its stock is fundamentally undervalued and provides a greater amount of flexibility in terms of timing the returns,” she wrote. Asked and answered.