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Gannett Offers $815 Million for Tribune Publishing Gannett Offers $815 Million for Tribune Publishing
(about 9 hours later)
The Gannett Company has offered to acquire the Tribune Publishing Company, which owns newspapers including The Los Angeles Times and The Chicago Tribune, for about $815 million including the assumption of debt. In recent months, Tribune Publishing Company installed new executives, overhauled its business strategy, admitted accounting weaknesses and issued shares to fund an acquisition that was ultimately rejected by regulators.
Gannett’s proposal, disclosed on Monday, is for $12.25 a share in cash — a premium of 63 percent to the company’s closing stock price on Friday. Tribune Publishing’s shares, which closed at $7.52 on April 22, skyrocketed in premarket trading Monday. For the Gannett Company, the owner of USA Today, all that turmoil looked like an opportunity.
According to a letter disclosed by Gannett, Tribune Publishing was unwilling to engage in discussions about a takeover. On Monday, Gannett went public with an unsolicited bid to acquire Tribune Publishing, an offer it had put forth in a letter on April 12 that was subsequently reviewed by The New York Times. After two weeks without a definitive answer from Tribune Publishing, Gannett decided to go straight to shareholders, disclosing the bid and corresponding letter.
In a separate statement, however, Tribune Publishing said it had hired advisers to review the proposal. “With the challenges we face today, waiting is not really an option,” Bob Dickey, the chief executive and president of Gannett, said in a telephone interview. “We need to continue moving our company forward.”
Tribune Publishing was spun off from Tribune Company, now called Tribune Media, owner and operator of 42 broadcast stations, in August 2014 and saddled with about $350 million in debt. Since then, its stock has tumbled as Tribune Publishing’s newspapers, like many print publications, have struggled with declining circulation and dwindling print advertising revenue. Tribune Publishing, which owns newspapers including The Los Angeles Times and The Chicago Tribune, has hired advisers to consider the bid, which amounted to $815 million including debt and other liabilities, the company said in a statement.
Michael Ferro, a Chicago entrepreneur, acquired a stake worth $44 million at the time in Tribune Publishing in early February through his Merrick Ventures. Less than three weeks later, Jack Griffin was replaced as chief executive by Justin C. Dearborn, a close associate of Mr. Ferro’s and the former chief executive of Merge, which was acquired by IBM. Soon after, Tribune Publishing announced it was combining the role of editor and publisher across its portfolio of newspapers, a decision that raised eyebrows in the media world. The unsolicited bid is a rare move in the newspaper industry, but it underscores the industry’s rising desperation. In the last several years, publishers have rushed to consolidate as newspaper prices have fallen. Many see these moves as a way to cut costs and build scale as they struggle with declining circulation and dwindling print advertising revenue.
The recent upheaval at Tribune Publishing is the latest the company has faced. Soon after the real estate tycoon Sam Zell bought the company’s predecessor for $8.2 billion in 2007, it filed for bankruptcy, with $7.6 billion in assets against a debt of $13 billion. The culture at the company had turned poisonous, and Tribune Tower, once a symbol of a great media company, became a place where executives used sexual innuendo and profane invective. The Los Angeles Times is widely considered Tribune’s crown jewel, but Gannett has broader interests. Acquiring all of Tribune’s newspapers would expand Gannett’s portfolio to nearly 120 newspapers and give it a bigger presence in major metro markets like Baltimore, Hartford and Orlando, Fla.
In recent years, The Los Angeles Times has become a flash point for disagreement between Tribune Publishing and its California newspapers. Austin Beutner, The Times’s publisher, was ousted last fall after only a year in the position because company executives viewed his ambitious plan to dominate California journalism as defiant and a threat to their centralized strategy. The newsroom has been reduced by job cuts. The philanthropist Eli Broad has long sought to buy the paper, but his moves have been spurned. “We’re very interested in the entire company,” Mr. Dickey said. “Their geographic footprint fits very, very nicely for us if you look at where we’re currently situated across the United States.”
In a further sign of discontent between Tribune Publishing and its California newspapers — in addition to The Los Angeles Times, the company also owns The San Diego Union-Tribune — the two entities have sparred over financial projections. Gannett could also cut costs by eliminating duplicate departments and management positions, Mr. Dickey said. He estimated these savings at $50 million, a number that some experts saw as a bit low. Gannett’s expansion could help it appeal more to national advertisers as well.
More recently, Tribune Publishing failed in its bid for Freedom Communications, which owns The Orange County Register and The Press-Enterprise of Riverside, Calif., after the Justice Department objected to the deal. It was a pursuit that apparently could not wait. Days after Gannett completed its acquisition of Journal Media Group this month, adding 15 daily newspapers to its repertoire, the company started preparing a bid for Tribune Publishing. Gannett hired advisers and submitted a letter to Tribune Publishing’s management team with an offer of $12.25 a share. Briefly, the two sides had considered a grace period of several weeks so that Tribune Publishing could consult with its advisers about the offer, according to people briefed on the proposal, who spoke on the condition of anonymity in order to discuss private negotiations. Ultimately, Gannett was unwilling to wait, and took its bid, which represented a 63 percent premium to Friday’s closing price, straight to Tribune’s shareholders.
Mr. Ferro and Mr. Dearborn have had several phone conversations with Gannett since the media conglomerate sent its first letter on April 12, according to Gannett’s most recent letter, published Monday. The two have been unwilling to begin “constructive discussions” with Gannett, the letter said. So, Gannett decided Monday to go straight to Tribune Publishing’s shareholders. The recent upheaval at Tribune Publishing is the latest the company has faced. Soon after the real estate tycoon Sam Zell bought the company’s predecessor, Tribune Company, for $8.2 billion in 2007, it filed for bankruptcy, with $7.6 billion in assets against a debt of $13 billion. The culture at the company had turned poisonous, and Tribune Tower, once a symbol of a great media company, became a place where executives used sexual innuendo and profane invective.
“Given the opportunity to benefit from the significant premium and near-term liquidity, we are confident that Tribune’s stockholders will embrace our offer,” said Robert Dickey, the president and chief executive of Gannett in the newly disclosed letter. “We would prefer to negotiate with Tribune, but we have determined that making your stockholders aware of our all-cash proposal is necessary given Tribune’s attempts to delay constructive engagement.” In August 2014, Tribune Publishing was spun off from Tribune Company, now called Tribune Media, and saddled with about $350 million in debt. Since then, its stock has tumbled as its newspapers, like many print publications, have struggled to offset the decline in print with digital growth.
Methuselah Advisors is providing financial advice to Gannett, while Skadden, Arps, Slate, Meagher & Flom is the legal adviser. Goldman Sachs and Lazard serving as financial advisers for Tribune Publishing, while Kirkland & Ellis is providing legal advice. In the last year, The Los Angeles Times has become a flash point for disagreement between the company and its California newspapers. Austin Beutner, The Times’s publisher, was ousted last fall after only a year in the position. In a further sign of discontent between Tribune Publishing and its California newspapers — in addition to The Los Angeles Times, the company also owns The San Diego Union-Tribune — the two entities have sparred over financial projections.
A potential savior for Tribune emerged in the form of Michael Ferro, a Chicago entrepreneur, who in early February acquired a stake worth $44 million at the time in the company through his Merrick Ventures. Less than three weeks later, Jack Griffin was replaced as chief executive by Justin C. Dearborn, a close associate of Mr. Ferro’s and the former chief executive of Merge Healthcare. Soon after, Tribune Publishing announced it was combining the role of editor and publisher across its newspapers, a decision that raised questions about editorial independence. Some also wondered whether editors had the business acumen to manage their newspapers.
Recently, Tribune had sought to expand its reach in California by acquiring Freedom Communications, which owns The Orange County Register and The Press-Enterprise of Riverside, Calif., but that bid failed after the Justice Department objected.
Adding to Tribune’s woes, the company admitted for the second year in a row in its annual filing with the Securities and Exchange Commission that it had identified “material weaknesses in our internal control over financial reporting.” Not long after, the company dismissed its accounting firm, PricewaterhouseCoopers.
When asked about Tribune Publishing’s accounting improprieties, Mr. Dickey said: “We’re very confident that we can resolve whatever issues that are there.”
Ultimately, Tribune shareholders may be hard pressed to find a more compelling offer. A group including the billionaire philanthropist Eli Broad had been considering buying The Los Angeles Times, but there was no indication on Monday that Gannett’s offer would spur competing bids.
“Given the uncertainty of a turnaround in a secularly declining business, we think TPUB will eventually take the offer,” Matthew Brooks, an analyst at Macquarie Securities, said in an email. “It may also be hard for Ferro to justify a higher price, given he paid less than $10 a few months ago and is effectively controlling the company now.”
Mr. Ferro’s Merrick Ventures, Oaktree Capital Management and Primecap Management Company own more than 40 percent of the company combined.
“With Michael Ferro having taken over as chairman of the Tribune board only three months ago, board support becomes a complicated issue,” Lance Vitanza and Brian Denes, analysts at CRT Capital, said in a note. “What we do know is that hostile takeovers are virtually unheard-of in the newspaper industry, where cultural fit is paramount and regulatory concerns loom large.”