Tribune's Michael Ferro: Sell to Gannett? We’ll Buy Gannett!
Tribune Publishing chairman Michael Ferro hasn’t said much in public since Gannett, the largest newspaper company in the U.S., went public with its hostile takeover bid for his company.
But inside the company, publisher of a slate of struggling but nationally recognized broadsheets like The Chicago Tribune, The Los Angeles Times and The Baltimore Sun, he’s talking tough.
On Tuesday, Ferro told a gathering of some five dozen L.A. Times sales staffers he was working on a bid to take over Gannett.
“I am going to bid on Gannett,” he told the group, according to a confidential source. “I have lawyers working on it.”
First published at Politico Media
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And he does: I’ve since learned Ferro has engaged attorneys working independently of Tribune Publishing itself to prepare it.
This bravado will likely meet skepticism in the industry, and among Tribune’s shareholders: Gannett is showing a market value of $1.84 billion today. That’s without whatever substantial premium any would-be raider would have to ante up.
On Thursday, Tribune declined to comment on a possible Gannett bid.
And anyway, if Ferro could put together the money for such a bid, why would he not instead simply match or exceed Gannett’s offer and take Tribune private?
But newspaper wars are no small part showbiz, as Gannett proved when it went public—giving an interview to its own USA Today reporter—to complain that Tribune leadership was stonewalling them on their proposal to buy the company. And playing to an audience is nothing new to the Chicago serial tech entrepreneur who has also demonstrated a craving for recognition in Hollywood.
Asymmetrical (newspaper) warfare
Ferro’s play already has the look of a comedy with a tragic ending.
The Tribune board has agreed to consider Gannett’s new $15 per share offer, its second. If it rejects that offer, two strategic choices emerge for those favoring sale.
Gannett could move to a third bid, anteing up still more, into unheard-of-in-the-newspaper-industry triple-digit premium territory, beyond the 99% premium its current offer represents. That bid could have a two in front of it, and a $20-per-share offer would signal Gannett’s absolute determination to win Tribune. Further, it would tell us that Gannett believes the annual savings it could gain from merger synergies would top both the $50 million Gannett CEO Robert Dickey initially named, and even the $100 million I had reported.
Alternatively, the word on the tip of everyone’s tongue: lawsuit. Either Gannett or an investor in Tribune or both could file. A suit would say, amid much legalese: Tribune board members are failing to do their basic jobs of maximizing financial value for shareholders.
Tribune executives knew that the threat of such a suit was imminent. Late Wednesday, it arrived.
Oaktree Capital Management — TPUB’s second largest shareholder at 14%, after Ferro’s own 16% — issued the unmistakable threat of such a suit, in an address to the Tribune board: “Our conclusion is that we are convinced that you and Tribune’s management should engage Gannett immediately and seek to negotiate a transaction in the interest of all Tribune shareholders. We expect you to carry out the fiduciary duty that you owe to all shareholders, and believe that the only possible conclusion consistent with your fiduciary duty is to engage with Gannett with the objective of maximizing value to all Tribune shareholders.”
In addition, Oaktree vice-chairman John Frank stated publicly what others (“Tribune’s anti-Gannett strategy: Tronc, the Lagos Gambit and stalling”) have said privately: Michael Ferro’s strategic vision is Wizard of Oz-like: “We have met with Michael Ferro and spoken with him on the phone, and we have listened to his ideas about building value as a standalone company through a digital transformation of Tribune. The ideas we have heard appear to be preliminary and involve great execution risk. Companies with much greater resources than Tribune and with a substantial head start are struggling in a rapidly changing environment to effect digital change that is profound enough and quick enough to overcome the outgoing tide of print revenues.
“In summary, we have not seen anything to give us any confidence that Tribune on its own, with the resources and competitive position it has today, can achieve over any reasonable period of time the value for shareholders that we believe can likely be achieved through a transaction with Gannett. And we see very substantial risk that through pursuing an independent course, Tribune will destroy enormous shareholder value. We have also met with Gannett management and advisors and listened to their description of their interest in acquiring Tribune and what they believe they can do through integrating Tribune’s properties with their system.”
In other words, there’s no there there – at least financially.
Meanwhile on Michigan Avenue …
Interestingly, Tribune management has not yet filled in the blanks in the sweeping strategic vision that CEO Justin Dearborn offered in the company’s first quarter’s earnings call on May 4. On that call, Dearborn described what I called the Lagos Gambit, the company’s plan to build a global entertainment news franchise (anchored by its LA Times’ Hollywood coverage) in cities from Lagos, Hong Kong, Mexico City to Moscow, Mumbai, Rio de Janeiro and Seoul. So far, my sources tell me, across Tribune, executives are asking how this new plan will be funded, and not getting answers. In fact, Tribune – across the country – moves forward with a virtual hiring freeze (POLITICO: “Hiring freeze at Tribune”.)
Secondly on May 4, Dearborn announced Tronc, the “Tribune’s content monetization engine,” which could sit atop Arc, the Washington Post’s syndicated platform about which Ferro has proclaimed, without concurrent Post confirmation, a long-term partnership. I’d noted that Ferro’s trotting out of Tronc had inspired at least one parody, and this week I’m hearing the L.A. Times’ newsroom — bitten more than once by empty business-speak — has been calling the would-be new system “Tronk.” While “Tronc” borrows from the British “for pooling tips, or more generally, pooling resources,” “tronk” has a different meaning. From the online Urban Dictionary: “A trollop or skank — or someone who goes around acting really slutty, but really are getting no action.” (Another possible cognate is the South African usage of the word tronk, for “jail.”)
As I had written (“Newsonomics: Can a Bezos buddy act help fend off Gannett’s bid for Tribune”) Tribune does indeed have an initial feel-out-the-process agreement with the Post for its Arc platform. Yet, a full build-out of Tribune’s nine metros would take at least a year. Presumably, Tronc would have to wait until such a platform foundation is built. The frenzied announcement of the Arc “partnership” was intended to prove out a strategic vision that Oaktree, among others, isn’t buying. Yet, the announcement is having internal repercussions.
Several top tech leaders are exiting the company, I’ve learned. In Chicago, the local tech team, sources say, has been told that “Arc and Tronc are the future, and they’ll have no role in them.” With a hot Chicago tech job market, some of the talent the next Tribune would need won’t likely stay to run the backstage for this play.
Ferro has meanwhile introduced a new player into the digital tech rethink. He recently appointed Anne Vasquez, who had been managing editor of Tribune’s (Fort Lauderdale) Sun-Sentinel, as the company’s chief digital officer. Vasquez, who is now Los Angeles-based, would focus on that Arc partnership. In addition, she would be assigned to notch another prime Ferro goal: improving ARPU, or other average revenue per unique visitor.
That ARPU goal makes a lot of sense, but, too, involves lots of moving operational parts, and long-term execution. Her appointment, atop all the other Tribune executive change, has caused still more consternation in the ranks.
In addition to Vasquez’s appointment, Ferro has raised eyebrows with at least four other recent higher-level hires of those who have worked for him in his previous enterprises. Given the wider hiring freeze, the whisper around Tribune is “cronyism.” It’s good they say to be a “friend of Michael’s.”
As Chicago press critic Robert Feder has pointed out from SEC filings, the Ferro-led Tribune is paying the local news aggregation network Aggrego — majority owned by Wrapports — $900,000 within four months in connection with the placement of links on its sites.
Ferro has said that his Merrick Media has donated its stake in Wrapports to an unspecified charitable trust. Indeed, in an April 2016 proxy statement, Tribune noted that: “In March 2016, Merrick Media and Merrick Management divested their ownership interests and ceased to have any other financial interests in Wrapports. As a result, the Wrapports-related agreements described above will not be considered related party transactions going forward.”
But related-party transactions or not, the fact that the beneficiary of that charity is not identified has caused ongoing suspicion in the Chicago press. Further, while such business development partnerships are commonplace among digital news sites — the appearance of commingling private interests and the interests of a public company like Tribune raises questions about the stewardship of stakeholder value at the company. And some of those questions could escalate to the special antitrust considerations surrounding metro newspaper markets, as Ferro repeatedly looks for ways to combine more completely the operations of the Chicago Sun-Times, owned by Wrapports, and the Chicago Tribune.
Meanwhile, Aggrego puts up an embarrassing national product. While its “local” sites include stories from local media, its national home page on Wednesday, led with the page with the May 3 story on then-Presidential candidate Ted Cruz elbowing his wife Heidi.
So that $900,000 in value may be difficult to prove out.
Similar concerns have been raised about Tribune Publishing’s potential relationship with High School Cube, a high-school football video business Wrapports is invested in. Though no public announcement has been made, plans are moving forward to integrate the product on Tribune sites in the second half of this year, I’ve been told confidentially. “We do not have an agreement with The Cube,” Tribune Publishing spokesperson Dana Meyer told me Thursday.
While such business development partnerships are commonplace among digital news sites, the appearance of co-mingling private and public company Tribune interests raises questions about the stewardship of stakeholder value at Tribune. And some of those questions could escalate to the special antitrust considerations surrounding metro newspaper markets, as Ferro repeatedly looks for ways to combine more completely the operations of the Chicago Sun-Times, owned by Wrapports, and the Chicago Tribune.
End times
For most of the public, all of this may seem to offer lots of comedy, but will likely become an obscure footnote, both internally and externally, in a corporate history … of the Gannett Company.
Though Gannett is prepared for long term trench warfare (POLITICO: “Gannett gears up for a long battle over control of Tribune Publishing”), pressure to complete the deal now mounts daily, and a deal could be reached within days or weeks. Those pressure points include that potential third bid and/or a lawsuit. Intriguingly, there’s also the way-behind-the-scenes pressure of engaging such Ferro associates as Chicago investor John Canning to persuade chairman Ferro that there’s no alternative to selling..
Even Ferro – despite public pronouncement – has shown signs of weakening in this resolve over the last week, I’m told. He’s mentioned an acceptable price – in that $20+ range – acknowledging the question isn’t whether, but how much.
As these two one-time titans of American newspaper chains cuddle up anxiously, let’s leave it to acerbic CNBC contributor Kevin O’Leary to put the would-be Gannett–Tribune deal in the bluntest possible terms:
“This is a long end game of cutting costs …. The long term [newspaper] trend is to zero,” he opined Monday. “This sounds like a business plan which is given to you when you finally descend into hell, and you know [you] have to live there in perpetuity … Who would want this?”
As he buried the deal, without praise, he added, “I want to have a moment of silence for all the money that’s going to die in this deal in this project. … Sometimes you have to say, ‘It’s going to zero eventually. I am going to milk as much as I can on the way.’ By putting all the zero candidates together on life support, you suck out every dollar before you turn out the lights. Let’s tell the truth. That’s what’s going to happen.”
That’s the bigger backdrop to what appears to be a tugging match between the plodding conservatism of Gannett CEO Robert Dickey and the irrational exuberance of Tribune parvenu Michael Ferro.
How long do these newspapers’ staffs and readers have — whoever owns the franchises?
