Tribune rejects Gannett's offer - not that it's stopping Gannett
This has certainly been an interesting week for what is shaping up to be a long, drawn-out slog that is Gannett’s attempt to acquire Tribune Publishing.
On Wednesday, May 4, Tribune officially announced that they are definitely, officially rejecting Gannett’s offer. And because it’s a public company, it had to justify the rejection - which lead to company CEO (and majority owner Michael Ferro loyalist) Justin Dearborn to make a, frankly, ballsy argument that Gannett is offering less than what the company is worth. Not what it’s necessarily worth now, but once it has to a chance to pull of a plan to “drive increasing monetization of our important brands, capitalize on the global potential of the LA Times and significantly accelerate our conversion of content to revenue through an enhanced digital strategy.”
Via Howard Scott/Flickr
Poynter’s follow-up article went into a bit more detail as to what that corporatese word salad actually meant. First of all, the company is looking to try to generate revenue a different way.
The idea, [Dearborn] said, will be to serve readers digital stories via "artificial intelligence," gather information about their reading preferences and then sell targeted advertising on a per click basis rather than the publishing norm of a cost per thousand impressions.
And the company wants to put more resources into Los Angeles Times, Tribune’s most profitable newspaper, in order to expand its entertainment coverage.
The bureaus, to be established later this year, will be in Hong Kong, Seoul, Rio de Janiero, Mumbai, Lagos, Moscow and Mexico City. Dearborn and Chairman Michael Ferro have previously discussed, in more general terms, that they think the L.A. Times can be leveraged into a global brand with a worldwide audience
Thing is, as Poynter and many other news outlets pointed out, Tribune has actually lost money during the first quarter of this year (about $6 million) - an unfortunate first for the company. This can’t really be blamed on Ferro, at least not entirely, but it does complicate any major initiatives. Especially since it’s coming from Ferro, who, as Wrapports owner, talked a lot about being innovative to bring the newspapers into the new age and failing to follow through. Even some potentially interesting ideas - like buying chicago.com, or investing in High School Cube - never seem to have come anywhere close living up to the potential.
As I’ve said since Ferro took control of Tribune, I don’t see why anyone would trust anything he ever says. But then, the rest of the Tribune board seems to trust everything he said so far…
Bloomberg Gadfly looked at Dearborn’s rationale as to why he feels Tribune is undervalued. I admit that a lot of what columnist Brooke Sunderland wrote flew over my head, but the gist seems to be this. Even if you assume that the company has tons of untapped potential, that potential won’t be worth as much as Dearborn and Ferro say. If one is being generous, it could be worth more than Gannett’s offer - but not to the point where the other company couldn’t pay it if it really, really wanted it.
And it might just be willing to pay the extra money. Over at Politico Media, Ken Doctor speculated that, if Gannett does wind up buying Tribune, it would try to sell the Los Angeles Times Media Group portion of the company. He feels that Gannett wouldn’t be able to cut nearly as much as it would in other markets - because it would be harder to consolidate resources with the few papers it has in the region. Plus, it would lead Gannett into territory it might not be equipped to navigate - one of the biggest newspapers in the country, which happens to serve USA’s second-largest city and its complex network of suburbs, is nothing to sneeze at. Selling the group would reduce risk and recoup some of the money it spent buying Tribune.
I can’t even begin to speculate if Doctor is on to something - I know next to nothing about Los Angeles area media market. But it certainly seems like an interesting possibility.
A couple of other interesting things to keep in mind. Two days before Tribune rejected the deal, Reuters reported that Oaktree Capital Group, the company’s second-largest shareholder, was open to a deal. Not necessarily a deal with Gannett - they don’t think it’s necessaily offering enough - but they wanted Ferro to look around and see if somebody would be willing to offer more.
In any case - to say that Gannett wasn’t amused seems like even more of an understatement than usual. The initial response was fairly mild. The official press release took a sharper tone, saying that Tribune was denying its shareholders a pretty good deal and insisted that the company’s rejection letter was “misleading.”
If Tribune’s Board and advisors view Gannett’s $12.25 per share proposal to be undervalued, the Tribune Board should release its analysis to Tribune shareholders to justify its issuance of shares to Michael Ferro at $8.50 per share in February 2016.
But that was nothing compared to the May 6 press release, which basically calls Tribune lying liars who lie. I was especially struck by this passage
The sale of approximately 16 percent of Tribune’s shares to its Chairman, Michael Ferro, approximately 90 days ago at $8.50 per share (a discount of $0.50 or six percent from Tribune’s closing stock price the day prior to announcement) was followed by a series of steps by Tribune’s Board that have conveyed disproportionate control to Mr. Ferro. The Board first appointed Mr. Ferro’s close business associate as CEO and director, then appointed three additional directors and at its 2016 Annual Meeting on June 2, 2016, will reduce the size of the Board such that five of the eight remaining directors will be Mr. Ferro and his closely affiliated nominees.
In the end, Tribune shareholders need to consider whether they are willing to entrust their investment to a Chairman who: bought his own shares at $8.50 per share; acknowledged he knows nothing about newspapers; said the Company is not for sale; and supported the nomination of a slate of directors that includes four nominees who are long-time business associates of or have significant ties to him.
Gannett isn’t necessarily wrong, But it still seems like harsh rhetoric against a guy they are, in theory, trying to make a deal with.
The bit about the June 2 meeting needs a bit of background. According to New York Times, not long after he assumed control, Ferro got the board to confirm appointment of three more directors. Since he and Dearborn both have seats on the board, this means that he had control of 5 out of 10 seats. On June 2, two board members who weren’t handpicked by Ferro are expected to step down, which would give him 5-3 majority.
Even before Tribune rejected the offer, Gannett has been urging stockholders to withhold the support for Ferro’s slate of directors during the June 2 meeting, hoping that it would increase pressure on the chairman and his allies. The rejection only made Gannett try harder.
But it’s probably not going to be that easy. Last week, Doctor wrote a piece where he argued that it’s not just that Ferro is arrogant and seemingly oblivious to his own hypocrisy - it’s that he’s unwilling to listen to any viewpoint other than his own. If he thinks he’s got a good idea, it’s unlikely that anyone is going to talk him out of it.
That is, so long as he wants to pursue the idea. As former Sun-Times managing editor Craig Newman once said, one of Ferro’s biggest weaknesses was that he seemed to never want to stick with something long-term, jumping from idea to idea. I wouldn’t be surprised if, a few months down the line, he’ll try to move on to something else.
It’s not super-likely - over the past few years, Ferro has been pretty upfront about wanting to own Tribune - but it’s definitely not outside the realm of possibility.
Meanwhile, I came across not one but two articles citing current and former Tribune reporters that described Gannett as the lesser of two evils, arguing that it at least has experience managing newspapers and cares about journalism, while Ferro, well, doesn’t. Which I’m not sure I’d buy - and I know that many current and former Tribune and Sun-Times reporters wouldn’t agree with that, either. In the end, I think most of them want a third option. A third option that would care about journalism, be willing to invest resources and wouldn’t use the papers for their own ends.
Which is a pretty tall order.
For now… Honestly, with Ferro involved, I hesitate to even try to predict anything. My instincts tell me that Gannett/Ferro fight is going to last for a while - but, at this point, I wouldn’t shocked if it would all gets suddenly resolved Monday morning.