Gannett Offers $815 Million to Buy Tribune Publishing

Tuesday, Apr 26, 2016

Gannett Co. (GCI), which owns USA TODAY and more than 100 other media properties across the country, said Monday it offered to buy Tribune Publishing (TPUB) for about $815 million, its second big expansion move since spinning off from its former parent less than a year ago.

In a letter to Justin Dearborn, CEO of Tribune, which owns the Los Angeles Times, Chicago Tribune and nine other dailies, Gannett CEO Robert Dickey reiterated Monday a private April 12 offer to pay $12.25 per share, a 63% premium to Tribune’s closing stock price last Friday. Gannett’s deal includes assuming $390 million of Tribune’s debt outstanding as of Dec. 31, 2015.

The offer price is about 5.6 times Tribune’s estimated 2016 earnings before interest, taxes and other items (EBITDA). Gannett estimates about $50 million a year in “synergies” savings. Gannett owns USA TODAY plus 107 local news organizations including the Detroit Free Press, Cincinnati Enquirer, Des Moines Register,the Milwaukee Journal Sentinel and Arizona Republic.

“We believe Tribune shares the new Gannett’s unwavering commitment to journalistic excellence and delivering superior content on all platforms,” Dickey said in a statement Monday. “In this respect, the proposed combination of Gannett and Tribune would bring together two highly complementary organizations with a shared goal of providing trusted, premium content for the readers and communities we serve.”

Dickey said in an interview that since the original offer, he has had several phone calls with Tribune’s non-executive chairman, Michael Ferro, and Dearborn. But the letter says Tribune has refused to begin formal negotiations, prompting Dickey to reveal the bid publicly.

“What we’re hoping for is to sit down with Tribune’s board and work out a transaction. We’re confident that, with cooperation between the companies, we can complete due diligence in a very timely fashion and execute an agreement,” Dickey said.

Shares of Tribune closed Friday at $7.52, up 2.6%, and shot up 53% Monday to close at $11.50. Gannett stock was up 6.5% to close at $16.79.

"The board is now engaged, with the assistance of its advisors, in a thorough review," Tribune Publishing said Monday in a statement. "The board is committed to acting in the best interests of shareholders and will respond to Gannett as quickly as feasible."

In August 2014, Tribune Publishing was spun off from its former parent, Tribune Co., which was looking to focus on broadcasting and eliminate its exposure to the declining print advertising market. Tribune Co. then renamed itself Tribune Media Co.

"Since the beginning of 2016, Tribune Publishing has been undertaking a transformation and has made significant organizational changes," Tribune Publishing said. "With a focused strategy, unmatched collection of award-winning content and brands, and the right leadership team in place, Tribune Publishing is well-positioned to create value for shareholders."

The bid, unanimously supported by Gannett’s board, comes less than a month after the McLean, Va.-based company completed its $280 million acquisition of Journal Media Group, which includes the Milwaukee Journal Sentinel and The Commercial  Appeal of Memphis.

Gannett spun off from its former parent in June of last year, retaining the publishing business but not its broadcast assets. At the time of the spin-off, Dickey made it clear that his strategy amid the turbulent print advertising market involved consolidating more media properties to strengthen its position on local reporting and local marketing and advertising.

Its 108 newspapers and their affiliated digital properties now comprise the newly created USA TODAY NETWORK, a nationwide news organization that taps into the combined resources of its 3,800 journalists to report on major national as well as local issues, and that focuses heavily on investigative and watchdog reporting.

If Gannett were to complete the deal, it would expand the NETWORK in strategic markets by owning dominant newspapers in major metro areas, such as the Los Angeles Times, theBaltimore Sun, Hartford Courant, Chicago Tribune and theOrlando Sentinel.

Tribune “fills a number of geographical gaps for us,” Dickey said. “We think bringing their publications to the USA TODAY NETWORK strengthens the overall NETWORK.”

While it owns some of the most august brands in journalism, Tribune has undergone some turbulent changes in recent months. Beset by falling print ad sales, the Chicago-based company reported a net loss of $2.8 million in 2015, swinging from a profit of $42.3 million a year earlier.

In February, Ferro, who made his fortunes in technology and health care, paid $44.4 million to buy a 16.6% stake in Tribune to become its largest single shareholder. Soon after the acquisition, Ferro removed Tribune’s CEO, Jack Griffin, and replaced him with a longtime associate, Dearborn.

“We believe Gannett is uniquely willing and able to propel Tribune into the position of strength that will allow its beloved and historic publications and other assets to survive and thrive in this challenging environment,” Dickey wrote in his letter to Dearborn. “Given the opportunity to benefit from the significant premium and near-term liquidity, we are confident that Tribune’s stockholders will embrace our offer.”

Gannett, which was virtually debt free when it spun off from TEGNA, plans to finance the deal using its existing $500 million line of credit and tapping the debt market for additional funds required. That will leave the company’s debt-to-EBITDA ratio “at about 1 to 1.5,” Dickey said. That is “considerably below industry standards,” he said.

While he will seek savings in duplicative functions, Dickey said the goal isn’t to cut back on editorial resources. “We have tremendous respect for the employees of Tribune Publishing. Our goal is to write great journalism at every location. And you can’t do that without having proper resources. I’m committed to investigative, public service journalism. We will always be efficient at our job. I focus on areas that don't impact journalism,” he said.

“Tribune Publishing has little history operating as an independent public company and may be unable to reach earnings targets,” wrote Lance Vitanza, an analyst at CRT Capital, in an investor note Monday. “Amid the turmoil, we find Gannett's interest intriguing…The bid doesn't appear to be out-of-line with recent public and private market multiples for newspaper companies.”


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