Newsonomics: How Gannett's Bid for Tribune Went South
Gannett’s hopes for a quick acquisition of Tribune Publishing, the owner of the Los Angeles Times, Chicago Tribune, Baltimore Sun and a half dozen other regional newspapers, are looking increasingly problematic.
Tomorrow at the Los Angeles office of law firm Sidley Austin, Tribune will hold its annual meeting, in which the board votes on a slate of directors put forth by Chairman Michael Ferro.
First published at Politico Media
Follow Newsonomics on Twitter @kdoctor
Ferro’s board has rejected two offers to sell Tribune Publishing to Gannett, the largest newspaper publisher in the country. Gannett’s most recent tactic has been to push publicly for board members to withhold their votes. Get a big enough “withhold vote,” Gannett’s thinking has gone, and it can be shown that the board isn’t satisfied that Ferro is acting in the best interest of the shareholders by continually rejecting Gannett’s advances.
But as of Wednesday evening, the prospects for a big “withhold” vote are looking slim. And now, if Ferro’s board nominees win overwhelming support, it will look like decisive message to Gannett to stop pushing.
Three major proxy adviser companies have issued their advice to shareholders: Vote the board in.
Though Institutional Shareholder Services noted issues with Tribune management, strategy and financials and gives the company low marks for governance, it still endorsed Ferro’s board slate. That slate includes three new board members, at least two of whom have ties to the tech entrepreneur. I highlighted “Fixing the financials at Tribune Publishing” those financial management issues — which could be an ongoing issue — but they haven’t dissuaded ISS or Glass, Lewis & Co. or Egan-Jones from opposing Gannett’s effort.
It’s clear that two major shareholders will support “withhold,” but between them, they have just around 20 percent ownership in the company. Both Oaktree Capital Management (currently 14.8 percent) and Towle & Co. (currently 4.4 percent) have issued their own broadsides, demanding the Tribune board negotiate with Gannett. While others will join them, a significant part of Tribune stock is held by less-than-activist institutional investors. Companies like Primecap (11.2 percent) and Vanguard (2.6 percent) are less likely to reject the so far unanimous opinion of these three proxy companies.
Newsrooms across the country are watching closely. Ferro and his new brain trust have an ambitious — some might say eccentric — plan for the newspapers they have controlled for the past four months. It’s heavy on the application of artificial intelligence to the news business and on opening entertainment-based bureaus in markets as far-flung as Lagos, Nigeria. To journalists, this newest version of a Ferro-led Tribune seems unpredictable in its staying power, in its impact on the journalism that will be delivered to readers every day, and its potential to support a large newsroom.
For many of them, being owned by Tribune or Gannett presents a choice between chaos and possibility (Tribune) or security and a kind of cookie-cutter journalism (Gannett).
This was not how it was supposed to be, from Gannett’s point of view. Gannett’s first rejected bid prompted a second at $15 a share, a 99 percent premium on Tribune’s beleaguered stock price. It had seemed an offer Tribune couldn’t resist. It looked like
Gannett, the largest U.S. newspaper company, would absorb Tribune’s major metro dailies, drawing them into the strong, fiscally disciplined but decidedly middle-brow journalistic culture for which Gannett has long been known.
Ferro has fought hard both publicly and behind the scenes to fend off the acquisition — and observers on all sides of the fight now agree he has the advantage.
Most recently, Ferro released a statement that opened a new line of attack on the logic of Tribune’s offer. “Gannett has yet to put forth a compelling offer to acquire Tribune,” the author wrote. “In addition, we have yet to see evidence of committed financing from Gannett, which we believe is certainly in question given its approximately $650 million pension and OPEB [Other post-employment benefits] liability.”
Ouch. Tribune Publishing, beleaguered financially since its spinoff from the Tribune Co. two years ago, now questions Gannett where it hurts, at its very soul: the company’s P&L. Gannett has long been considered financially the best-managed company in the newspaper industry. Now, Ferro, flush with a new $70.5 million investment in TPUB (“Can Michael Ferro fend off Gannett with this one weird trick?”), trash talks down the finances of his rival.
After tomorrow’s vote, Gannett has already said, it will reconsider its bid.
Left with a weak “withhold” outcome — perhaps in the 25 percent to 30 percent range — Gannett will face the choice of upping its price still higher or letting go of the deal for now. “How much less will Tribune Publishing be worth in a year?” goes one line of thinking, and Gannett might be able to pick up a weaker Tribune for under $10 a share within the next year. If Gannett withdraws as a suitor, expect TPUB stock to drop back to where it was, pre-Gannett offer, in the $7 range.
Given the increasingly severe losses in print advertising — down digital digits across the industry — that could turn out to be the most prudent decision. Further, Gannett may go after other newspaper companies, ones less resistant to its cash charms.
If Gannett should walk away, or move on to other prey, M & A watchers will point out the flaw in Gannett CEO Bob Dickey’s takeover timeline.
Gannett missed a deadline to file its own slate of director candidates.Gannett’s takeover strategy might have fared better with a competitive election than “withhold.” Yet Gannett’s interest in Tribune only ramped up in 2016’s first quarter, as Ferro seized control of the company, ousting the CEO, Jack Griffin, who had brought him in.
Further, Gannett, on a buying streak, was greatly occupied with closing a previously announced acquisition with Journal Media, which didn’t finalize until April 8.
So Gannett may have entered the hunt with one hand tied behind its back.
Gannett wasn’t worried, given that its other hand was stuffed with cash. With its current offer, it’s paying well above the market for Tribune’s slipping earnings. Gannett naturally expected Tribune to do what companies usually do when someone offers them twice the value of their company: take it. Or at least, sit down and ask for a little further sweetener to wrap things up.
Ferro’s Tribune, though, hasn’t so far done that, to Gannett’s exasperation. Instead, the war of words between the companies — abetted by their teams of the best of the best bankers, attorneys and strategic communications firms — continues to reach comic heights. In the tangle of arguments about what kind of non-disclosure agreement it would take to allow Tribune to actually negotiate with Gannett, the bog of war only grows murkier.
After tomorrow’s vote — about which we’ll probably learn the results some time during the day — Gannett, and key investors, will have some decisions to make.
While the “withhold” campaign has been going forward publicly, behind the scenes, investors are busy assessing an endgame: legal action.
Will any of the investors file a suit against Tribune? With some shareholders talking — but only behind the scenes, not for attribution — about “Tribune becoming the Chernobyl of corporate governance” — such a suit could give Tribune’s board of directors second thoughts. The question today: Will anyone file, and when?