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April 29, 2017

Michael Ferro Uninterruptus: Can Gannett Pry The Talkative Tribune Head From His New Chair?

Meet Michael Ferro.

Ferro, 49, is not yet three months in to his stint as chairman of Tribune Publishing, the newspaper company that owns and operates such august titles as The Chicago Tribune, The Los Angeles Times and The Baltimore Sun, and he is already fending off efforts from powerful quarters to take the company away from him.

That, at any rate, is how he characterized a hostile bid from newspaper giant Gannett to buy his company.

The truth, as is always the case with Tribune this last decade, through several owners and chairmen and CEOs, is both more comedic and more tragic.

 

First published at Politico Media

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It was just January when Ferro accepted an invitation from then-Tribune CEO Jack Griffin to invest $44 million in the newspaper company, presumably in order to shore up its bid for a group of newspapers in southern California that would consolidate Tribune’s business there and advance Griffin’s plans for the company.

Ferro assumed the role of “non-executive” Tribune board chair — and then ousted first Griffin, and then most of the business-side leadership, within his first month. In short order, the company lost the bid for those California newspapers (“It’s official: Digital First Media defeats Tribune in bid for southern California newspapers”).

Consider all that, and now listen to Ferro as he explains why Gannett’s offer, to buy the company at a more-than-60-percent premium to its current share price (“Gannett makes Tribune’s Michael Ferro an offer he likely can’t refuse”), isn’t fair.

Speaking to a reporter for his own paper, the L.A. Times (in one of the first interviews he’s given about his plans for Tribune), Ferro said: “I believe 100% in my heart that this is completely a manipulation, that they’re trying to steal the company, bum-rush us.”

(Tribune declined to make Ferro available for an interview, as it has since his ascent at Tribune.)

Ferro’s interview about the takeover attempt was a page out of his antagonist’s playbook. Gannett first approached the company on April 12, seeking a meeting to get the acquisition talks, and requisite deeper due financial diligence, underway.

Saying they found Tribune unresponsive, Gannett CEO Bob Dickey went public, giving an interview about the stalled negotiations to Gannett’s own USA Today on Monday, less than two weeks later.

In acrimony unusual within the newspaper industry, the two companies’ leaders resorted to a war of words Tuesday. Tribune used words like “erratic,” “unreliable,” “aggressive” and “hostile” to describe Gannett and its CEO Bob Dickey. Dickey himself measured his words more carefully: saying Ferro and Dearborn had worked to “delay constructive engagement.” Both sides bickered about why a planned April 18 joint dinner had been cancelled.

In the L.A. Times interview, Ferro and his new CEO Justin Dearborn laid out their plan — or sketched it out — for the first time. It wasn’t that they didn’t want to talk to Gannett, they said (and after all, corporate law would make it difficult to justify not hearing out such a rich offer on behalf of the shareholders); it was just that they felt the talks would be premature.

“We are not avoiding the conversation,” Dearborn said Tuesday. “We asked for some time.”

Given the magnitude of the surprise offer that puts a 63% premium on last Friday’s share price close, the big question on the non-negotiating table is what Ferro and Dearborn plan to do with “some time.”

Ferro began to answer that question, too, in the interview.

On May 4, when TPUB publicly reports its first-quarter financial results, Ferro says he will lay out his vision for the company, fleshing out the data-centric business model he has publicly alluded to since taking control of the company.

In addition, Ferro has picked his own referees to report to the newly Ferro-expanded Tribune Publishing board on the merits of that strategy; Andrew Ross Sorkin’s analysis of Ferro’s board tracking further illuminates his “just give us time” strategy.

On Tuesday, Tribune announced that it had hired not one, but two banks to provide strategic guidance to the board. In the usual case, such banks — Goldman Sachs and Lazard Frères, in this instance — are hired to “assess strategic opportunities.”

That’s usually shorthand for “how to best maximize the sale price of the company.” In this case, though, Ferro wants the bankers to assess the business prospects of his new model, and compare them to the Gannett offer.

“We are planning on breathing some life into the L.A. Times globally,” Ferro told the L.A. Times. “We will be talking about how to get the L.A. Times brand … to the world. It’s on a par with the New York Times and other international publications, that no one has properly cared for, and we are going to do that.”

Further, he talked about a “content monetization engine,” using artificial intelligence to wring new value from Tribune content.

“We think it’ll be a rock-star business” that can “create more revenue … than you’ve ever seen.”

If that language is reminiscent of a Donald Trump speech, the rest of Ferro’s cri de guerre isn’t. Somehow, Ferro seems to think of Gannett as the parvenu and himself as the guardian of the traditional newspapering establishment. Speaking of Gannett’s attempted theft of Tribune, Ferro told the Times: “It is ungentlemanly, it is not what we do in this industry. It is not the way we do business.”

Still a newbie to the newspaper business — he bought into the Sun-Times way back in 2011— that invocation of the “we” is a bit rich.

If newspapering is still vestigially a “gentleman’s” business, Ferro is hardly its exemplar, given how he came to assume his role as a major leader of the U.S. news industry.

But actually that old newspaper fraternity has been slowly breaking up. Private equity companies like Alden Global Capital (the owner behind Digital First Media) and Fortress Investments (the money behind the Gatehouse Media expansion and such ill-considered moves as that company’s recent sale of its Las Vegas paper to casino magnate Sheldon Adelson) have had a major hand in that.

Then, don’t forget the Koch Bros’ effort to buy Tribune papers three years ago — still another strange chapter in the Tribune saga. The newspaper industry, from the ’60s on at least, began by developing into city monopolies. When owners wanted to sell, they called up the usual prospects, the guys they knew from the industry conferences or the golf links, and deals were usually done privately, without much bidding, or, perish the thought, rancor. If they engaged someone to facilitate the sale, it was as often a highly specialized newspaper broker (yes, they exist) as a bank. Sometimes, there was active bidding, but again within the fraternity.

So, to be sure, Gannett’s hostile move does not fit into the old mold. It can only be easily compared to Rupert Murdoch’s similar, high-premium demand to buy Dow Jones in 2007. Murdoch bowled over the owning Bancroft family with a 67% premium; Gannett has offered TPUB shareholders 63%.

Should Ferro succeed in delaying Gannett’s bid for these next several weeks and lay out a strategy, he’d better hope for a better reception from the investment bankers he’s hired and his friendlier board than he’s gotten, privately, from peers in the industry.

Over the past month, Ferro has talked to numerous peers in the newspaper industry. Actually, according to several high-placed media executives who briefed me on their conversations with Ferro, the better construction is “talked at.”

All those to whom I spoke confidentially describe their hour-plus long sessions as nothing short of bizarre. The common format: Michael Ferro talks for 90% or more of the time, shooting a “firehose” of ideas, largely unpunctuated by questions, opportunities for feedback or responses, or any evidence of self-reflection.

CEO Justin Dearborn participates in many of the meetings, but he doesn’t talk much. His role, one would think, is fairly well defined as that of the more silent partner in the business; he’s been working with Ferro for 19 years.

No matter how vast the experience or well-burnished the credentials of those in the room, the script is the same: Ferro Uninterruptus. (Perhaps a new revenue source may be found in paid streaming of Ferro’s meetings with his new bankers.)

Of course, none of this is news to the smaller world of people who have known Ferro since he first made waves in Chicago as an ambitioning tech entrepreneur.

Chicago Magazine’s 2013 profile neatly captured the outsized ego of the man. And in his first week on the job as “non-executive” chairman of Tribune, on a visit to New York to meet the top Tribune business executives stationed there, he shocked them with the same act: all talk, no listen.

Savvy observers further note that Ferro’s inability to connect well with others helped torpedo his “winning” bid to buy the Orange County Register and (Riverside) Press-Enterprise last month. Neither Ferro nor his new lieutenants had built relationships that would have been helpful in blunting Department of Justice antitrust pursuit.

All of that reporting reminded me of the single time I met Michael Ferro. It was two years ago, at the Sun-Times. I’d met with the two Tims running the place: Tim Knight, who now runs the Plain Dealer in Cleveland for Advance Communications; and Tim Landon, the long-time Tribune executive devising Aggrego and other non-newspaper ventures for Ferro, through Wrapports, the Sun-Times holding company. We sat in a large conference room, shooting the industry breeze, and then Ferro walked in.

I vaguely recognized him as someone I’d seen in a photograph, and then he started talking. He didn’t introduce himself; he just walked to the back corner of the conference room, and started talking. It seemed unusual, but with his tech-infused patois, I quickly figured out it was Michael Ferro, the Sun-Times major domo. He talked for ten or fifteen minutes or so, and then, I think, he exited. He left as unobtrusively, one might say awkwardly, as he had entered.

If we are to make historical comparisons, the advent of Michael Ferro as a (probably short-time) newspaper mogul would place him as the illegitimate offspring of swashbuckling Tribune owner Sam Zell and former Freedom Communications CEO Aaron Kushner, a fount of ideas that quickly dried up.

These last four months of Tribune history would seem so astonishingly weird — if you didn’t know about the last decade of Tribune’s troubled life.

Tribune’s set of once-proud newspapers have endured this soap opera ever since motorcycle-riding real estate magnate Sam Zell rode his way into the company’s control in 2007. Then, unbelievably, five years of mind-numbingly boring bankruptcy proceedings kept the company in suspended animation, as the digital disruption forever changed the world around it. Then, mother Tribune orphaned its publishing arm in mid-2014, keeping all the digital assets and the real estate under the storied newspapers, robbing the company of turnaround digital future. Jack Griffin then made an earnest, if troubled, attempt at that turnaround, a movement stopped in its tracks when new investor Ferro seized control of the company in January (“CEO Jack Griffin is out at Tribune.”)

But now, it seems, is not the time for talking. What can Ferro do to fend off Gannett?

His hiring of the two bankers should buy him some time, and his long-promised big-splash May 4 strategic vision announcement is only one week away. Whatever the merits of that strategy, though, it would take time and money to execute, likely years given the scope of what Ferro has limned.

Compare the high speculativeness of his strategy with the Gannett’s hard cash and present strategic position. How will Goldman Sachs and Lazard artfully do that, and make sure they collect their own fees? We may find out, but afterwards.

In the meantime, the clamor among shareholders to get their payday will only grow. With Bob Dickey likely willing to sweeten his offer another 25 cents to a dollar a share, big shareholders — like Oaktree Capital Management, the second largest owner after Ferro — will push hard for a deal. They would be getting a per-share price they haven’t seen since last August — and are unlikely to see again.

What can Ferro possibly gain by playing out this seemingly futile effort to resist Gannett?

Ferro has already Hollywood-cast himself as a newspaper Jedi — capable of saving the business of newspapering against the most powerful Forces. What has that gained him? Three years ago, the company of stars like Jenny McCarthy and Jim Belushi. More recently, Martin Scorsese and Steven Zaillian.

Onward and upward for the star-struck Ferro, who, as we detailed in February (“Oscar spotlight a dim one for hometown L.A. Times”) attended the Oscars on tickets usually used by working reporters.

But one industry observer’s Hollywood metaphor for Ferro was less kind. “He’s like Butch Cassidy, and he should realize he’ll soon be facing what seems to be the whole Bolivian army.”

Then, as always, with Tribune, the unexpected could happen.

Could another bidder emerge? The bankers should certainly assess that possibility. Apollo Global Capital, which had expressed interest to then Tribune board chairman Eddy Hartenstein last fall but never went “hostile,” shows no sign of renewed interest. Anyhow, Gannett’s bid — at an announced multiple of more than five times Tribune earnings — exceeds what Apollo has, as a rule, been willing to pay for newspaper assets. None of this will be lost on board members.

There’s one more possibility. Could Michael Ferro aim to take TPUB private? Given the financial constraints of the public company, that’s likely the only way he could ever have hoped to pull off an investment in his strategic plans anyhow.

Ferro may be wealthy, but doesn’t personally have the wherewithal to pull off such a coup. Could he rally monied interests – like those he assembled to buy the Sun-Times five years ago? That seems doubtful, as even some of his early investors in Wrapports have grown disenchanted with him.

Who knows? Ferro’s outsized ego might be powerful enough to find a way to pull off that kind of out-of-the-box plan, and his motivation is huge: maintaining the newfound if precarious place in the national power elite that he has bought himself at great expense.

Without a Hail Mary, he’ll have to retreat back across town to the Chicago Sun-Times, and its relative anonymity, savoring for a moment the fame and entry, to the Oscars and Gridiron Dinner, that Tribune “ownership” had briefly meant.

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