Marathon Partners Sends Letter to the Board of Directors of Hearst-Argyle Television Urging Directors to Reject the $23.50 Cash Tender Offer

Marathon Partners Sends Letter to the Board of Directors of Hearst-Argyle Television Urging Directors to Reject the $23.50 Cash Tender Offer

NEW YORK, Aug. 28 /PRNewswire/ -- Marathon Partners L.P. has sent the following letter to the Hearst-Argyle Television, Inc. (NYSE:HTV) Board of Directors:

August 28, 2007

Board of Directors
Hearst-Argyle Television, Inc.
300 West 57th Street
New York, New York 10019

Dear Board Member:

Marathon Partners ("Marathon"), of which I am the Managing Member, is a holder of more than 90,000 common shares of Hearst-Argyle Television, Inc. ("HTV" or "the Company"). I am contacting you as a result of Victor Ganzi's letter dated August 24th, 2007, in which Hearst Corporation offered to acquire the shares of HTV that it does not own for $23.50 through a cash tender offer. Hearst Corporation proposes to commence the tender by early September. I am very concerned by these developments. The timing of Hearst Corporation's offer, the speed of the response required and certain other dynamics have heightened our concern regarding the proposed transaction.

It is absolutely clear that the current offer does not fairly compensate the shareholders of HTV for the unique and valuable assets the Company controls. I strongly urge you to reject the $23.50 offer outright. From my viewpoint, this is a highly opportunistic move by Hearst Corporation that offers no compelling call to action for HTV owners. It is obvious to me that any true fiduciary would find Hearst Corporation's offer unacceptably low. In case it is not obvious to you, I have highlighted some of the reasons below.

HTV Management Comments

During HTV's second quarter 2006 earnings conference call, management stated the following about the Company and its share price:

"I believe we're one of the strongest companies in the business, as
evidenced by the quality of our stations and our people, the quality of
our earnings, and the strength of our balance sheet. These are
challenging times, but we feel we are up for the challenge. We are
frustrated with the weakness of our stock price, but believe that HTV
shares represent outstanding value for investors."

HTV's share price the day before that earnings conference call was just shy of $21.00. I am confident that CEO David Barrett comments about HTV as an 'outstanding value' did not start at $21.00 and end at $23.50. More likely, Mr. Barrett's comments reflected a belief that intrinsic value lied well above the then current market price for HTV shares.

Mr. Barrett's response to a question during the Company's second quarter 2007 earnings conference call regarding HTV's year-to-date stock performance was also telling:

"We're talking about a moment in time here, and I don't think that the
market is appreciating the value of the assets we have, the strong brand
performance of these stations, and the digital initiatives. I think we
are way ahead of the pack in terms of many of the things that we're
doing, and the quality of our earnings is better than most of the people
that we compete with, and the market isn't focused on that right now.
It's very short-term focused. We're not appealing to the momentum guys
for the moment, and I wish we were. I think our stock is greatly
undervalued."

It is not an everyday occurrence that the CEO of a company says the shares of his or her Company are 'greatly undervalued.' Such words should not be taken lightly, especially from a top operator such as Mr. Barrett. I understand and agree with Mr. Barrett's frustration concerning HTV's undervalued share price. I am confident that $23.50 would not remedy the concerns expressed above.

Hearst Corporation's acquisition of HTV shares

Since the second quarter of 2004, Hearst Corporation has acquired more than 8.1 million shares of HTV. More than 5 million of those shares were acquired at prices above the $23.50 tender offer price. In 2004 and 2005, Hearst Corporation paid as high as $25.80 and $25.72, respectively, to acquire shares. As recently as 2006, Hearst Corporation paid up to $24.00 to acquire shares. As a sophisticated and knowledgeable insider, Hearst Corporation clearly would have an advantaged position from which to assess HTV's intrinsic value. In all likelihood, Hearst Corporation made the investments because it believed, as I did, that it was acquiring the HTV shares at prices below fair value. Given these facts, it would make absolutely no sense for the Directors of HTV to accept a price below Hearst Corporation's open market purchases from a short time ago, especially when one assumes that those purchases were made at prices Hearst Corporation found attractive.

Retransmission Consent

HTV has just started to meaningfully monetize its content via retransmission consent negotiations with program distributors. Retransmission consent revenue totaled $6.8 million in 2005, $18 million in 2006, and is projected to be $18 - $20 million in 2007. In 2008, 2009, and 2010, HTV has indicated it will enter the 'next round' of retransmission negotiations with its 'most significant distributors.' While the Company has not provided any estimates beyond 2007, industry trends suggest that the Company is well positioned to monetize its content to a much greater degree upon the expiration of its agreements at the end of 2008.

Digital Initiatives & Investments

By the end of 2007, HTV will have spent approximately $90 million related to digital conversion. While all shareholders bore the expense of these capital expenditures over the past several years, Hearst Corporation will be the primary beneficiary of the return generated by these investments if the transaction is allowed to proceed as stated.

In addition, HTV has made multiple strategic investments in the digital media space, including its nearly 40% ownership stake in Internet Broadcasting. In the Company's fourth quarter 2006 conference call, CEO David Barrett conceded that the Company would be "very dissatisfied" if digital revenue "stays in the 2, 3, 4, 5% range." Coupled with Mr. Barrett and Mr. Ganzi's 2006 Annual Letter to Stakeholders which specifically notes that digital investment will be the growth drivers of the Company in the future, it is clear that there are significant returns expected in the future from these investments.

2008 - Historical Political Year

By nearly every account, 2008 is shaping up to be a historical year for political advertising revenue. Candidates have raised record sums to date and continue to add to their war chests. The earlier primaries stand to pull forward political advertising from all candidates. Most importantly, the duration of the presidential race between each party's nominee will expand markedly. It is clear that many of HTV's stations are well positioned to benefit in the short run from the coming avalanche of political dollars. Hearst Corporation's timely proposal to HTV is quite self-serving as it seeks to usurp the public shareholders' participation in next year's huge political advertising surge. A recent Reuters article stated that analysts predict television stations could see $2 billion to $3 billion in political advertising revenue in 2008, up from $1.6 billion in 2006 and $900 million in 2004.

Mr. Ganzi's letter to HTV would have you believe that recent events in the marketplace now place a 'premium on liquidity' and that Hearst Corporation's offer is at an 'attractive premium.' Mr. Ganzi's view of the capital markets aside, I have not found a sudden need for liquidity nor do I find the offer price attractive. Indeed, I not only find the offer unattractive, but also question the timing of Hearst Corporation's maneuvers. Prior to Hearst Corporation's proposal, HTV's shares closed at or above $23.50 on 134 out of 162 trading days this year, or 83% of the time. Additionally, Hearst Corporation has waited to make its offer until one of the slowest weeks of the year for Wall Street, while expecting a rapid answer from HTV. From my vantage point, this offer was made at a time when general market weakness created a small window for Hearst Corporation's paltry offer price to be perceived as fair to the weak-kneed or weak-minded.

From Management's commentary over the past two years, it is clear that the Company has high expectations for 2008, 2009, and 2010. Succumbing to an embarrassingly low tender offer by Hearst Corporation now robs all other shareholders of the chance to share in the value creation expected over the next few years. I understand Mr. Ganzi's desire to run HTV as a private company. However, I urge you not to give Hearst Corporation the luxury of owning this valuable and unique company at a price far below its intrinsic value.

In previous letters, I have communicated to you the importance of stepping into the shoes of minority shareholders, especially for the independent Directors. I urge independent Directors Elkins, Pulver and Williams to be particularly vigilant in protecting the minority shareholders of HTV. In today's environment, Boards of Directors are operating under a microscope. This situation is no different.

Please do not hesitate to call me if I can be of any assistance. Thank you for your time.

Sincerely,

Mario D. Cibelli
Managing Member

About Marathon Partners L.P.

Marathon Partners L.P., founded by Mario D. Cibelli in 1997, is a New York based investment partnership.

First Call Analyst:
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Source: Marathon Partners L.P.

CONTACT: Marathon Partners L.P., +1-212-490-0399

Web site:

http://www.marathonpartners.com/

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