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June 2, 2016, 9:17 p.m.
Business Models

Tribune gets Troncked: A reader’s guide to the Tribune/Gannett war

You’ve had better things to do than follow every twist in this insane battle, so here’s a primer on how things got so troncked up.

In a move that, even amid all the nastiness of the Tribune/Gannett war, we would still have to consider stunning, Tribune Publishing has renamed itself — to tronc. In a memo to Tribune staff this afternoon, CEO Justin Dearborn wrote:

Today, I am pleased to announce another important step in our transformation — the renaming of our Company to tronc, or tribune online content. At our core, we remain a content curation and monetization company focused on creating and distributing premium, verified content across all channels. This rebranding acknowledges our important evolution as a company and captures the essence of our vision for the future.

Editor’s note: Because we do not hate our readers, Nieman Lab style from here on out will be a capitalized Tronc, no matter what the company insists — just as we have long killed the exclamation point in Yahoo and refused to render “Politico” in all caps, and just as we sliced out the old slash in Recode before that company came around to the same idea.

In a war of corporate naming, it’s apparently a race to the bottom. Tronc joins the two-year-old ex-Gannett broadcast company Tegna [or TEGNA! —Ed.] in the pantheon of odd corporate naming. Fast followers of the Tribune Publishing saga will recall that a month ago Tribune chairman Michael Ferro and his hand-picked CEO Justin Dearborn had outlined Tribune’s latest turnaround strategy around a Tronc “content monetization engine.” Now Tronc — a logo and an idea on a whiteboard — has swallowed Tribune itself. Tribunites become Troncites. [Maybe Tronckites? —Ed.] Twitter is alive with outrage and laughs.

Dearborn and Ferro have been hazy in their description of the new technology — how it would work and when it could actually start making money for a company badly in need of it. Those within Tribune say not much work has been done on the tech itself. But, hey, the logo is done! Today, the press release noted the company was:

Launching troncX, our content curation and monetization engine, which combines our existing assets with new artificial intelligence (“AI”) technology to accelerate our digital growth; and partnering with Nant Capital and Dr. Patrick Soon-Shiong to accelerate the transformation from a legacy news company to a technology and content company.

Soon-Shiong is the L.A. billionaire who just bought a 12.9 percent share of Tribune (er, Tronc), becoming its vice chairman in exchange for $70.5 million. He is also now the object of a lawsuit filed just this morning in the Delaware courts, accusing him, Ferro, and the Tribune board of subverting shareholders’ interest in Tribune by not negotiating a sale to Gannett.

That drags the company back into court, just two years after it emerged from the five-year bankruptcy from Sam Zell hell. (For those with short memories, he’s the previous newspaper newbie who tanked the company.) Now as the tech entrepreneur Ferro has taken control, that courtroom entanglement looks like it could repeat itself.

And finally today, in an L.A. law office, Tribune held its annual meeting, voting in its directors — a group suitor Gannett has opposed. That “withhold” election has now spawned its own war of words, a colorful adjunct to a kind of corporate fight that usually remains mum in the boardroom.

Got all that?

You’re excused if you’ve spent your spring doing something other than following the swirling rings of Tribune Publishing’s circus-like courting by Gannett. Many feel lost in the miasma of their struggle. As the newspaper industry’s business fortunes descend still faster this year — with print ad revenues now plummeting at double-digit rates off a smaller and smaller annual base — one wag has unearthed the old saw of two bald men fighting over a comb to describe Gannett’s unwelcome hug of Tribune Publishing.

But even if I don’t blame you for not paying attention, when the country’s biggest newspaper company tries to buy its fourth-biggest, we should take notice. So as a beginning-of-summer briefing, I humbly offer this installment of Ask the Doctor. We’ll catch you up on the questions you may have had, in browsing the many headlines in this now six-week-old war of words, or ones you may wonder about as action newly picks up. Special bonus feature: occasional Nerd Alerts, for those who want to wallow in the substantial weeds.

Who’s suing whom?

A smaller Tribune investor has taken the lead here. Capital Structures Realty Advisors LLC filed suit this morning in everybody’s favorite venue, Delaware. The 28-page complaint is only available through Delaware court dockets, but let me sum up the claim: Tribune Publishing’s board has failed to do its legal duty by the shareholders, make them money. That’s the first legal requirement of directors of a public company, to act in the best interests of the shareholders. And by most people’s reckoning, Ferro, who became chairman of the Tribune board in January, hasn’t exactly done that.

Normally, when a bonafide cash offer from a big company comes knocking at the door, a company’s leadership will open it. The complaint says Ferro has done everything possible to keep it locked tight. Most particularly, the suit challenges Ferro’s recent sale of 4.7 million shares of stock to L.A.’s richest guy, Soon-Shiong, and essentially calls it an above-the-table subterfuge to further consolidate his total control of the company, and to further prevent a sale to Gannett. And it says many other nasty things about Ferro’s leadership behavior as well.

Nerd Alert: Lukas Alpert in The Wall Street Journal, “Tribune Publishing Shareholder Files Lawsuit Against Board.”

Wasn’t this supposed to be the day that Gannett declared victory in its “Withhold” campaign, asking Tribune shareholders not to vote in Ferro’s new slate of directors?

Indeed. It’s no accident that the anti-Ferro suit was filed this morning. Consider it a gift to Tribune intended to spoil its big day when Ferro could announce the new board’s election. Instead of mere champagne-raising at the annual meeting, held in the L.A. offices of Tribune law firm Sidley Austin, Tribune’s leadership could read through the Delaware brief. Never underestimate spite in the corporate world.

Gannett had missed a deadline to file its own competitive slate of directors — that miss was a big misfire — and so it opted for the symbolic “no vote” campaign. It simply asked shareholders to withhold their vote on the board slate. That campaign, which looked to be flagging, may — or may not — have met expectations. Gannett’s effort ran into trouble over the last 10 days as three firms that advise shareholders on such votes, gave the Trib board a thumbs-up, even while acknowledging Tribune’s numerous problems. The “Withhold vote” wasn’t successful; Ferro’s slate of officers were all elected, to no one’s surprise. And as the numbers came in, it became a game of Spin City.

By Tribune’s reckoning, a good majority supported the company’s choices. But by Gannett’s count, “approximately 49% withheld their support from the entire slate of director nominees,” with majorities voting against certain members, including Ferro, his hand-picked CEO Dearborn, and Eddy Hartenstein, the former L.A. Times publisher and the publicly silent orchestrator of so much Tribune chaos over the past several years.

How could the numbers be so different? Gannett’s math conveniently leaves out the voting shares of Michael Ferro’s Merrick Ventures himself, and that’s about a 16.6 percent stake. Further, it doesn’t count the votes of Tribune Publishing’s own board members or those of Tribune Media, the company split off from the Tribune Company along with Tribune Publishing in August 2014. Add those up and they account for about 18 percent of all possible votes. My math, with help from counting sources close to the action: About 35 percent of Tribune’s outstanding shareholders voted to withhold their votes on the entire board slate. That’s a decent level of protest — not as high had hoped, but still a noisy rebuke to Ferro’s leadership.

Optics are important here. Tribune can say it won its majority, and justly so. And Gannett can say that if you’re not a company person, you want a sale to Gannett. Both seem to be true.

Nerd Alert: “Tribune Today’s Not Looking Good for Gannett”; “Gannett Comments on Support of Tribune Publishing Company Stockholders for Gannett’s Offer to Acquire Tribune.”

How friendly to Ferro is that new slate?

Well, today’s lawsuit details that friendliness, concluding: “The Board will not vote to initiate litigation against defendant Ferro because he dominates and controls the board.” Three of Ferro’s former associates were appointed to the board April 5, giving him full backing (though the previous board had seemed as pliable as newsprint in the wind). As the suit notes: “Defendant [Richard] Reck has known defendant Ferro for decades, starting when defendant Reck was an auditor for defendant Ferro’s first successful company, Click Commerce…Due to defendant Reck’s sense of duty to defendant Ferro for the millions of dollars defendant Ferro has earned for defendant Reck, defendant Reck will not vote to initiate an action against defendant Ferro.” And: “Defendant [Donald] Tang will not vote to initiate litigation against defendant Ferro because of defendant Ferro’s close relationship with [former Chicago Mayor Richard] Daley…Defendant Ferro gave Daley tens of thousands of dollars in campaign contributions. Voting to initiate a lawsuit against defendant Ferro will jeopardize defendant Tang’s relationship with Daley, his Chairman.” Reck, Tang, and Carol Crenshaw, the third new member, now find themselves sued less than a month into the job. Hope they checked on how much D&O (directors and officers) liability insurance comes with this job.

Nerd Alert: Lynne Marek in Crain’s Chicago Business: “Tribune Publishing adds board directors.”

How are the Withhold campaign and the lawsuit connected?

They’re not, of course — just as super PACs operate completely independently of political candidates, right? Both are simply pressure points. Gannett figured that its initial offer to double Tribune’s share price would be a no-brainer for Tribune to accept. Though Ferro’s Merrick Ventures would have made a cool $40 million profit on a four-month investment, the Tribune board has twice rejected Gannett’s offered act of corporate generosity. So the fight to get Tribune to do the thing any sensible company would do has been fought on two fronts: the Withhold campaign and, now, the lawsuit. The singular idea: Force the Tribune board to sit down, ask a little more of Gannett, and wrap up a big chunk of the consolidation of the U.S. daily press.

Nerd Alert: “Tribune’s Michael Ferro: Sell to Gannett? We’ll Buy Gannett!”

Ah, yes. There are the actual newspapers, readers, and communities to consider here, right?

Well, yes and no. As the lawsuit put it so starkly today:

Defendant Ferro views the Tribune as his chance, his “project,” to leave a legacy and “save” journalism. He has publicly stated that he wants to work in the journalism business for the next twenty-five years. Defendant Ferro has admitted that he does not view Tribune as a normal company and that he has three “constituencies.” However noble defendant Ferro’s sentiments might be, they are inconsistent with Delaware law.

Newsies, consider yourself patted on the head. I’ve said it before: Local newspaper companies won’t be able to chart a great course forward as single-class, publicly traded companies. By law, those companies have a singular duty: Make money for the shareholders. As Capital Structures Realty Advisors points out, the journalism is besides the point — and somebody else’s concern.

So how exactly does journalism play into this?

That obscure question has hardly been asked in the brief battle between these two once–hugely profitable titans of the U.S. daily journalism business. Tribune newsrooms have suffered for almost a decade now, since Sam Zell’s leveraged buyout in December 2007 served as a early preview of industry carnage to come. Zell took the company into a five-year bankruptcy, and the new Tribune Publishing — orphaned by its mother Tribune, which stocked its broadcast spinoff with all the digital and real estate assets — tried to figure out a way forward under CEO Jack Griffin. I’ve spent too much of the time since reporting the fires and misfires of that 18-month period, which was followed by Michael Ferro’s seizing of the company after Griffin brought him in as an investor.

Ferro promises revolutionary change — and the porting of his tech/artificial intelligence smarts into the poor, dumb old newspaper biz — yet his ideas seem disconnected from getting people the news of the day. So a Ferro-led Tribune promises a weird kind of independence, but absolutely uncertain journalistic direction.

Gannett, on the other hand, plays the long game of consolidation, of being the Last Man Standing in local print/digital news. As always, though, the question for Gannett, its newspapers, and its readers is: How good a sort of local journalism will they get? The company has made strides in bringing in top editor talent at a number of titles, and Gannett properties have done some good investigative and enterprise work. CEO Bob Dickey talks a lot about “the new Gannett.” Can that new Gannett rise above its reputation, fair or unfair, as a too-middlebrow news company that forces cookie-cutter solutions on its papers across the country? Will the company — having now swallowed Journal Media and maybe soon Tribune — have enough money and smarts to chart a valuable course in local news?

Someone asked me last week who’d I’d root for in this battle. I told them that in my role as an analyst and citizen, I root for more and better journalism. In this battle, you can pick your favorite.

So will Gannett pull out?

Gannett has already said it will reconsider its options after today’s vote. The company faces a couple of options: 1. Go away and come back another day, as Tribune’s stock will likely plummet on news of Gannett taking its money off the table; 2. Increase its offer. I’ve reported that Ferro may well take an offer of $20-plus a share and call it a day. Then again, Gannett can now wait to see how Delaware courts respond to today’s suit asking “injunctive relief” — shorthand for expediting this timely case. (That’s one of the reasons company-friendly Delaware is used in these kinds of matters.) Legal experts have told me that a court could take up the case and deliver a ruling in weeks — so Gannett could hang loose and see if a court compels the Tribune board to talk to Gannett.

Nerd Alert: Alex Sherman in Bloomberg: “Gannett Is Leaning Toward Dropping Bid to Acquire Tribune”; “Can Michael Ferro’s ‘I Am Tribune’ routine hold up in court?”

Is Gannett’s offer generous?

By newspaper property standards, certainly. It’s offering more than the going rate for newspaper company annual earnings, which are in decline. What drives this deal, though, isn’t revenues and profits — it’s cost savings. At first, Gannett CEO Dickey said that the Tribune buy would generate $50 million in annual savings. Then he upped that number. Observers I’ve talked to put the number closer to $125 million to $150 million a year. That’s real money, and certain money, as print ad revenues drop by double digits in early 2016.

Newspaper ownership today is more and more like Monopoly — all about putting together adjacent properties. As Gannett closed its acquisition of Journal Media in early April, it acquired the Milwaukee Journal Sentinel. Presto magico: Getting the Chicago Tribune would mean lots of consolidation between those two properties. With Gannett’s infrastructure — including placing the USA Today national news section in local dailies, replacing any local (desk) work that goes beyond local — tens of millions of dollars can be saved. And then there’s the whacking of Tribune corporate, which would likely be number one on Dickey’s list.

Nerd Alert: Roger Yu in USA Today, “Gannett threatens to pull revised offer after Tribune rejects it.”

Does Bob Dickey really have a list?

Wouldn’t you like to know? Seriously, the keep-it-in-the-middle-of-the-road CEO has got to be going a little nuts. He never anticipated that a company like Tribune would outright reject a 99 percent premium on its stock — and then escalate the name calling. How bad have things gotten between the would-be negotiators? According to a Wall Street Journal report last night, really personal. After Gannett unceremoniously issued a press release (and SEC filing!) saying that Ferro had demanded a “piece of the action” (“a ‘significant role’ at the company post-closing and [being] its ‘largest shareholder’), Ferro apparently texted these words to Gannett board chair Jeff Louis, who had attended the meeting at which the words were allegedly spoken: “You’re a liar. You are a fraud. You have no business being involved with a public institution.”

Since it’s a Journal report, it smartly noted that Louis and Ferro are “acquaintance[s] and…neighbor[s] along Chicago’s tony Gold Coast” and “sometimes discuss vacation plans or where their teenage children might go to college.”

Today, oddly, in the Tronc renaming staff memo, Dearborn (or was it Ferro ghost-writing?) added insult to Gannett’s supposed injury at “losing” its anti-directors vote: “Importantly, the majority of voting shareholders rejected Gannett’s symbolic, feeble and expensive withhold campaign.”

If that sounds Trump-like, you’re not the first to notice the similarities to the Donald in Ferro’s privately F-bombing, publicly filling-center-stage persona.

In fact, Ferro has said he’s gone so far as to hire attorneys for the purpose of buying his would-be acquirer — though we haven’t heard much of that talk in the last two weeks.

Nerd Alert: “Michael Ferro Uninterruptus: Can Gannett Pry The Talkative Tribune Head From His New Chair?”

What’s this about the pages of the newspaper leaping toward at us, as we’re reading a Harry Potter newspaper?

Ah, yes. I thought you’d ask. Let’s go way back to May 23. That day Tribune announced that the good L.A. doctor Patrick Soon-Shiong would be plunking $70.5 million of his estimated $12.5 billion fortune into Tribune. While critics and those suing said the investment was meant just to blunt Gannett’s charms, Tribune pointed to Soon-Shiong’s 100 or so patents and his near-the-L.A.-Times studio, both of which Tribune would gain access to. Soon-Shiong’s Nant Technologies, thus became a centerpiece of Tribune’s future, as highlighted in today’s Tronc announcement.

So back to the Harry Potter question: How soon will Trump (and presumably others) leap off the pages of the Chicago Tribune into readers’ visual field? Sooner rather than later, Ferro and Soon-Shiong would like Tribune shareholders to believe. Soon-Shiong explained the relevance of his visualization technology to Bloomberg:

[Soon-Shiong] said he wants to use “machine vision” technology he’s developed to transform the experience of reading a print newspaper.

The Tribune’s portfolio of newspapers includes the Los Angeles Times and Chicago Tribune.

For example, a reader could pan a camera across a physical newspaper and the photos could be turned into video. Focus the camera on a photo of basketball star Kevin Durant or Donald Trump and “you’d hear him speaking or Kevin Durant would be dunking,” he said.

“You’d be bringing to life whatever you see on the newspaper,” Soon-Shiong said. “Every page, every picture, every commercial is merely a TV channel activated by the picture itself through machine vision recognition.”

Please forgive the industry veterans who recall the rise (and fall) of the CueCat, the “cat-shaped bar-code scanners…produced and shipped for free across the U.S., in hopes that people would use them to scan specially marked bar codes to visit Internet sites.” That quote’s from Time’s naming it one of “The 50 Worst Inventions” — ever.

Yes, VR and lots of machine-aided intelligence is moving slowly into “publishing,” but these are all incremental moves — not the revolutionary ones Tribune now paints. Besides, as many inside Tribune whisper (so as not to disturb their their new maximum leader): How is this going to generate any new revenue in the next couple of years?

Nerd Alert: Gerry Smith in Bloomberg: ““Tribune Investor Seeks to Revive Print With ‘Machine Vision.'”

So is Soon-Shiong some kind of space cadet?

No, not at all. His business acumen is keen, and his work in genomics helps lead real progress in next-stage cancer treatments. In addition, he appears to care about L.A., having considered buying the paper last fall. But, as with lots of people from outside the trade, he has little idea how to connect the dots — how to link needed fresh thinking with the creation and delivery of news and analysis. Bloomberg noted a “spookily similar” situation where Soon-Shiong’s tech was supposed to help revolutionize a toy company named Jakks Pacific, itself trying to fend off a takeover bid. It didn’t go well.

He must be a little taken aback by being the prime target of today’s lawsuit. And while he may see his recent $70.5 million investment (at $15 a share — the price Ferro says is no good when Gannett’s offering it) cut in half if Gannett withdraws its bid, that’s a small monetary issue. Besides, he could recoup it by putting one of his fancy cameras in the Tribune L.A. offices, where his new superior, chairman Michael Ferro has just ensconced himself in the publisher’s suite. Who wouldn’t pay to see the Ferro/Soon-Shiong conversations?

Nerd Alert: Brooke Sutherland in Bloomberg: “Billionaire’s Tribune Play Has Toyland Parallels.”

What’s a Tronc, really?

While now Tribune’s turned it into a neat acronym — tribune online content — no one at the company had cited that construction earlier. Instead, we were told it’s a term that involved monetization, as in “a British expression for pooling tips, or more generally, pooling resources.” Wags in the L.A. Times had resorted to calling it Tronk, a skanky term. Who knows what they will come up with now? (For another take on Tribune’s AI plans, see Jon Regardie’s parody, “Inside Michael Ferro’s Secret Content Monetization Engine.”). “Online” is a curious word to pick in 2016, connoting desktop when we’ve all gone mobile and “digital” is the word of the day.

Finally, the L.A. question: Who is going to play Michael Ferro in the movie?

The former Chicago corporate climber has gone L.A., spending about half his time there, and making it his tech center. Though he still does deals with his Chicago buddies and hankers to buy his former paper, the Chicago Sun-Times, Ferro’s fallen in love with Hollywood. He took newsroom tiks to get a good seat at the Oscars, and he dreams of a global entertainment news franchise.

My pick: Christian Bale, reprising his American Hustle role. Nominations are open.

POSTED     June 2, 2016, 9:17 p.m.
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