The process of converting LIN Television Corporation to LIN Media LLC continues forward but is contingent on a number of factors. The motivation behind the move involves the ability to avoid certain tax liabilities.
In a release, the company stated, “As LIN has previously disclosed, the benefit to LIN of completing the merger is the ability to reduce all or a portion of a $573 million capital gain that resulted from LIN’s sale of a minority interest in a joint venture [with NBC] in February 2013. The amount of the reduction is directly related to, and is reduced by, an increase in the trading price of LIN’s class A common stock. As LIN has previously communicated to its stockholders and as a result of the recent increase in the current trading price of LIN’s class A common stock, LIN’s board of directors may decide to defer the completion of the merger until a later time (or abandon it altogether) as permitted by the merger agreement after LIN’s stockholders vote to adopt the merger agreement at the special meeting. LIN’s board of directors will continue to evaluate the appropriate timing for completing the merger, whether promptly after its stockholders vote to adopt the merger agreement or a later time.”
Wells Fargo analyst Marci Ryvicker believes the conversion will be a go. It’s an effort to shield what was a $715.5M taxable capital gain carrying potential tax liability of about $164M which would be triggered if the price exceeds $20/share.
The stock is currently 32% greater than it was at the time the LLC move was announced, and as of 7/24/13 it stood at $16.17.
Ryvicker concluded, “Bottom line, should the stock remain close to current levels, we think the conversion will remain on track and we are on the sidelines until this is resolved. As of yesterday’s closing price, the cash tax savings from conversion = ~$88 million or $1.61/share, so we think the LLC conversion is still a beneficial action.”