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June 1, 2017

Michael Ferro's Tronc Aims to Complete Chicago Domination With Sun-Times Purchase

Update: Final bids for the Sun-Times are now due on June 5: http://www.chicagotribune.com/business/ct-tronc-sun-times-deal-other-buyers-0601-biz-20170531-story.html

 

While Tronc chairman Michael Ferro has enjoyed the celebrity allure of his largest paper, the Los Angeles Times, it is in Chicago where he made his name and his fortune. That’s where his comfort zone, and his investors in Tronc-dominating Merrick Media, live. On Monday Tronc announced what close observers have predicted ever since he bought into Tribune Publishing (renamed Tronc last spring) in early 2016: Tronc is moving ahead to buy Wrapports Holdings, the parent company of the Chicago Sun-Times. No price for Wrapports, which also includes owner of alternative weekly The Chicago Reader and other digital assets, has been disclosed. “We’ll announce the price if we close,” Justin Dearborn, CEO of Tronc told me Monday afternoon.

That’s a proximate “if.” The sale could close within two weeks, by June 1, according to Tronc. What could hold it up? Another buyer.

 

First published at The Street, on May 16

Follow Newsonomics on Twitter @kdoctor

 

Dearborn says that Tronc and Wrapports made their public announcement on Monday in order to flush any other would-be bidders out of the woods, or Chicago suburbs. That’s not a courtesy; it’s a reckoning that the Department of Justice’s approval of the sale of Chicago’s second-biggest daily to its largest daily will come more easily if it’s proven that no other buyers are willing to newly invest in what has been an ever-struggling newspaper.

“We’ll keep the newsroom independent,” said Dearborn. That statement, too, would seem aimed at DOJ approval, which could be withheld on antitrust concerns.

Will Tronc commit to keeping the newsroom the same size as it is, I asked him. “We’re talking about its independence,” he told me. Of course, the Sun-Times’ newsroom capacity has been steadily shrinking over the years, as the once-robust tab has bled staff, talent and experience. It’s a money-losing operation, probably in the mid-to-high single digits annually, and has been for awhile, even as new owners, including Ferro in December 2011, pledged turnaround after turnaround. In truth, it’s hard enough to run a sustainable monopoly daily today, and the Sun-Times has become almost a vestigial second daily financially. It does remain, though, an important voice in Chicago, and Ferro’s control of it will send more chills down many a Chicago spine.

For Tronc, the economics should be compelling, as the company would see double financial benefit.

First, in keeping the Sun-Times alive, it maintains its long-time agreements to have its Chicago Tribune print and distribute the Sun-Times. How important is that to Tronc?  The deals have generated as much as one-fifth of Tronc’s annual cash flow. Losing that profit, should the Sun-Times simply join other second city dailies and go under, would be damaging to the company’s already tight finances.

Second, since as one close observer puts it, “everything will go away other than the newsroom,” Tronc may produce another $3-$5 million in annual cost savings. Tim Knight, now head of TroncX’s digital division, says “there are overhead efficiencies and real estate [office leases]” where money can be saved. Since, the Chicago Tribune already prints and distributes the Sun-Times, expect that the Sun-Times’ ad sales department would also be merged into the Chicago mothership, further adding to the expense reduction.

In the deal, Wrapports’ large minority stake in Headlines Network, through its Aggrego holding, would also move to Tronc. Headlines Network — a newspaper industry consortium-like, would-be replacement of ad and content networks Outbrain and Taboola (“An Outbrain for Newspapers, Headlines Network Launches“) — aims to become a major ad network play for top chains, including McClatchy, Gatehouse Media, Hearst, Morris, Belo, Swift, BH Media Group and Lee. Tronc, which has not joined that business, could join in.

Yet, that doesn’t appear to be its goal here.

In Monday’s announcement, its headline read: “Combination would preserve Sun-Times independent voice, increase Tronc’s digital audience.”  Today, that digital audience, driven by nine newspaper properties, stands at about 60 million. That’s large scale, but still, most would say, sub-scale in the national digital ad business. The Sun-Times counts an audience of about five million, but the math here isn’t simple. Many of those five million — especially given that the Sun-Times and Chicago Tribune both serve Chicago — would be duplicated, so it’s unclear how much actual new reach the deal really offers. It may make a fine talking point, but the deal is in the cash flow.

For Tim Knight, the deal is a head-turning, what-comes-around-goes-around one. Knight, a Tribune veteran who left the company soon after Chicago real estate bottom-feeder Sam Zell bought Tribune in 2007, landed at the Sun-Times as publisher, where he worked for Ferro’ Wrapports. After a brief stint in Cleveland, he took over the TroncX job earlier this year — and now finds himself co-leading the company’s acquisition of the Sun-Times. “I feel like I’m going around in concentric circles,” he told me. Indeed, that metaphor may be true of too much of America’s newspaper industry.

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