As the Internet continues to disrupt old media business models, publishers of traditional vehicles such as print newspapers are scrambling to figure out how to survive. One of the main questions they face is: Consolidate or be consolidated?
Gannett has made it clear it wants to be the one doing the consolidating, and its $815-million acquisition offer for Tribune Publishing is just the latest example.
Gannett—which owns USA Today and a number of other prominent U.S. titles, including the Detroit Free Press and the Arizona Republic—reportedly sent its official bid to Tribune Publishing on April 12, but the media giant decided to make the offer public on Monday after getting what it suggested was an unsatisfactory response from Tribune management.
In a note released Monday morning, however, Tribune Publishing says that it was simply taking its time to review the offer, and that the board of directors is “committed to acting in the best interests of shareholders and will respond to Gannett as quickly as feasible.”
Tribune owns the Los Angeles Times, the Chicago Tribune and the Orlando Sentinel, as well as a number of smaller regional papers.
The bid from Gannett, which involves a payment of $12.25 per share—a 63% premium to Tribune’s closing stock price (TPUB) last week—and the assumption of $390 million in debt, doesn’t come as that much of a surprise to industry observers because Tribune Publishing has been in turmoil for much of the last year.
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Much of the upheaval at Tribune has focused around its flagship, the Los Angeles Times. The chain fired LA Times publisher Austin Beutner in September, saying he was responsible for “lagging financial performance.” Then Tribune CEO Jack Griffin, who pulled the trigger on Beutner, was himself fired in February by Michael Ferro, shortly after the Chicago entrepreneur invested in the company and became chairman of the board.
There’s no question that one of the jewels in the somewhat faded Tribune crown is the LA Times, which generates an estimated 40% of the parent company’s revenue and is likely a key factor in attracting Gannet’s interest. The Times has also been the subject of acquisition offers from individuals—including Beutner, who tried to mount a bid with some local Los Angeles backers, but failed to convince Tribune to sell.
Gannett has also made it clear that it is willing to pay up for Tribune. Its offer works out to about 5.6 times Tribune Publishing’s estimated 2016 cash flow (or earnings before interest, taxes and depreciation). Tribune shares climbed by more than 57% to almost $12 after the markets opened following the bid.
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The newspaper chain has made it clear that it wants to be at the front of the newspaper consolidation wave. Last year, it acquired the Journal Media Group—a regional chain whose assets include the Milwaukee Journal Sentinel—for $280 million. The company has been trying to build something it calls the USA Today Network, a national reporting service composed of journalists from its member papers.
In many ways, Gannett and Tribune Publishing are both shadows of the companies they once were, mirroring the restructuring and upheaval that has taken place in the newspaper industry. Both were spun off from their parent corporations, which turned their more valuable non-newspaper assets—radio and TV stations, primarily—into separate companies. Gannett was spun off last year, and Tribune in 2014.
In its statement about the bid, Gannett says it could achieve about $50 million a year in “synergies” from the combination, which likely means layoffs and cutbacks on the operational side—especially since it would be taking on a substantial amount of debt (although the company notes it is currently debt-free).
In order to meet their financial obligations, some newspaper chains are removing entire layers of editing staff, while others have laid off all of their photographers or even shut their print operations down altogether. Other chains, including PostMedia in Canada, have consolidated their newsrooms in markets where they own more than one newspaper.
One question that remains unanswered about a potential Gannett-Tribune combination is whether federal antitrust regulators will frown on the merger. The Department of Justice recently vetoed Tribune Publishing’s proposed acquisition of Freedom Communications, a holding company that owns the Orange Country Register among other papers, saying it would reduce competition too much in those markets.
There isn’t as much overlap between Gannett and Tribune’s markets and titles as there was with Freedom, so it’s possible the DOJ won’t be concerned. Even if it is, it’s worthwhile asking what the alternative is in a market that is rapidly declining. Print newspapers are already being decimated by digital competition and the disruption in the advertising industry. What other strategy is there?