Tribune Plays Coy as Gannett Makes a Bid

http://www.nytimes.com/2016/04/26/business/dealbook/tribune-plays-coy-as-gannett-makes-a-bid.html

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A recent history of mistakes, slip-ups and management blunders is woven into the fabric of Tribune Publishing, the struggling publisher of The Los Angeles Times and The Chicago Tribune.

Now, the company may be about to add to the list.

On Monday, Gannett, publisher of USA Today, disclosed an eye-popping $815 million bid for what is left of the Tribune publishing empire. But instead of Tribune’s board popping Champagne corks and shouting Hallelujah, it told Gannett, astonishingly, in effect: “Wait. We’re not sure we want to do that and, actually, we’re not sure we even want to talk to you about it.”

Two weeks ago and behind the scenes, Gannett made its bid, valued at $12.25 a share, known to Tribune’s board in the form of a private letter. That’s 63 percent higher than Friday’s share price. At most public companies that at least pretend to think about their shareholders, a firm that gets an unsolicited offer hires bankers relatively quickly to sort out its options. And perhaps it engages in a bit of back-and-forth with the suitor in hopes of feeling them out and maybe getting an even higher bid.

Not Tribune.

Its board sat on the offer for nearly 10 days without retaining outside advisers. Then, Tribune wrote Gannett a letter saying it was still working on hiring outside advisers, but is “in the midst of significant transformation,” and pointed out that the company will “undergo some change” after June 2, almost six weeks from now.

While Tribune said it would “evaluate” the bid, the clear takeaway was that it wanted more time.

You might ask, what’s magical about June 2? That is the day of Tribune’s annual meeting.

More important, it is the day that two of Tribune’s board members step down. When that happens, Michael Ferro, an entrepreneur with next to no media experience who invested in the company earlier this year and became the company’s nonexecutive chairman, will have effectively mounted a coup of the board.

Here’s how he did it. In February, Mr. Ferro’s company invested $44.4 million in Tribune. In exchange, Mr. Ferro was given a seat on the board, bringing the board to seven people.

Mr. Ferro then persuaded the board to fire Tribune’s chief executive, Jack Griffin, a media veteran, who was also a director. Mr. Ferro replaced him with Justin Dearborn, a former health care technology executive with zero experience in media. So, between him and Mr. Dearborn, he now controlled two seats on the board.

He then pressed the board to expand to 10 people and added three people friendly to him — all, again, with no meaningful background in journalism. They are Carol Crenshaw, chief financial officer of the Chicago Community Trust; Richard A. Reck, founder and president of Business Strategy Advisors; and Donald Tang, a former banker who now runs a boutique focused on United States-China media deals.

So now he has five friendly directors on a 10-person board. But after June 2, when two previous directors step down, he will have a majority — five of eight.

Tribune will tell you these directors are all independent. That’s true only insofar as they are not executives working at the company. But they are certainly insiders relative to Mr. Ferro.

If Mr. Ferro, who said this year, “I wouldn’t sell for $50 a share,” according to Ken Doctor on NiemanLab, can get past June 2 without a deal, he will probably have the leeway to fully direct the process. He could choose to negotiate or perhaps he could stonewall. He could even try to take the company private himself. Who knows?

Whatever the case, the idea that Tribune’s board has allowed this sort of behavior to take place is alarming. Given that Tribune Publishing was just spun off from Tribune Media and itself was a product of bankruptcy thanks to Sam Zell’s mismanagement of the company, it’s hard to argue that this company deserves the benefit of the doubt.

Lance Vitanza, a media analyst at CRT, put it best. “Tribune Publishing has little history operating as an independent public company and may be unable to reach earnings targets,” he wrote in a note to investors. “Recent management upheaval creates numerous risks with respect to strategy and execution going forward.”

If you’re thinking to yourself, well, Tribune is a journalism company and simply selling to the highest bidder shouldn’t be the only consideration, you’re right. Tribune shouldn’t consider only dollars and cents. In this case, Gannett is offering Tribune a lifeline with potential to create a modicum of stability.

It is hard to believe that Gannett’s offer is its last, or best. A company that is willing to go public with a bid is usually willing to bid more. Of course, there’s a chance that Tribune is engaging in an inscrutable courtship dance that will land a higher price. We’ll only know if Tribune first picks up the phone.