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June 18, 2018, 10:06 a.m.
Business Models

Newsonomics: McCormick Media’s back in the Tronc game, as eyes turn to the TRNC ticker

What will happen to the price of Tronc shares as investors, a good number of speculators among them, assess the post-L.A. Times value of a major daily newspaper chain effectively halved in the deal?

Since Patrick Soon-Shiong has resolved his “transition issues” with Tronc and has finally taken formal ownership of the Los Angeles Times and the San Diego Union-Tribune, many eyes turned toward the NASDAQ at market open today. Their focus: TRNC. What will happen to the price of Tronc shares as investors, a good number of speculators among them, assess the post-L.A. Times value of a major daily newspaper chain effectively halved in the deal? Current investors certainly have keen interest, but they are not only ones looking for signs of new valuation.

Even as Tronc dispatches its California holdings, sources tell me that the company has been talking to potential acquirers of the nine other Tronc properties. Those properties include the Chicago Tribune, the New York Daily News, the Baltimore Sun, the Hartford Courant and two big Florida properties in South Florida and Orlando. As I’ve reported, there’s impetus to sell Tronc properties, among them the golden parachute deals its top executives have negotiated in case of “change of control.” Further, Tronc’s relatively clean balance sheet following the infusion of Soon-Shiong cash makes the company more attractive to some potential buyers, who could then leverage up the company.

The company, I’m told, has shared financials with large potential buyers like Rupert Murdoch (soon to exit much of his legacy business with the sale of 21st Century Fox). I’m told Murdoch has already passed on a Tronc buy. One other strategic buyer with the wherewithal to buy the remaining properties has also checked out the company. There’s some private equity interest as well. Then there’s the still-quarter owner of Tronc, Soon-Shiong himself. Just as the LA Times confirmed that his buy would finalize, he shot back at his one-time partner in Tronc, Michael Ferro: “I hope that I can convince the board to drop the name Tronc. I think we need to go back to Tribune….The legacy of this [company] needs to be respected and I always thought Tronc was a silly name.”

While Soon-Shiong clearly had a chance to buy the rest of the company and declined, perhaps a lower price might entice him.

Certainly, though, one eager buyer will be watching the NASDAQ Monday morning. McCormick Media, the Chicago-based company, is back in the game.

“The next four months are crucial,” Sargent McCormick, the leader of the buying group and chair of the Chicago-based Harvester Trust, told me Sunday evening. McCormick Media had agreed to pay $208 million, at $23 a share, for Merrick Media shares. But it fell short of raising the funds necessary to complete the deal, which expired at the end of May. Now the Harvester Trust is initiating a new fund aimed at attracting outside-the-Trust investors in securing a deal for Tronc — or just for the Chicago Tribune. “We had more than half of what we needed,” McCormick told me. Given the legacy of the Trust (founded in 1899) and its strong roots in the Chicago-based business of agriculture, McCormick hopes to raise new funds among corporate ag players. McCormick Media would be interested in buying either the hometown Chicago Tribune — with an eye toward preserving the Tribune legacy — or all of Tronc. Its heart, though, is clearly set on Chicago.

For its part, Tronc, like any similar corporation, would prefer to sell its remaining properties in a single deal. That would be faster and cheaper. Still, it could presumably sell the Chicago Tribune to McCormick Media (for less than $208 million it had offered for a quarter of Tronc overall) and then sell the rest in one or several deals.

Given the plunge of newspaper revenues (Tronc itself was down 9 percent year over year for the first quarter of 2018), buyers of mainly big metro papers are generally harder to find than for smaller dailies. Yet here’s where price may play a role as a catalyst.

With a close of $17.32 on Friday, a generally average premium of 20 percent would generate a price of $20-plus per share. If that translated into cost savings for the McCormick group, of about $3 a share, that makes its deal with Merrick Media — or a bigger company — more likely. Should the Tronc share price drop, the chances of a buyer swooping in increase. Of course, we may get a quick indication of where the share price is headed Monday, or that movement could take more time to play out.

As numerous financial observers have told me, Tronc’s price computes oddly. On Friday, its market cap closed at $611 million. On Monday, Patrick Soon-Shiong will have assumed $90 million in pension obligations and given Tronc $500 million in cash. Its “enterprise value” of $751.75 million included its debt, almost all of which should be retired with the cash infusion.

So the question Monday morning: How much is the rest of Tronc really worth? In part, that’s a call on the kind of earnings that Tronc will actually produce for the next several years in a rapidly declining marketplace. On Tronc’s first-quarter call with analysts, CEO Justin Dearborn provided this forecast: “Adjusted EBITDA, again excluding for the California assets, is expected to be $100 million to $110 million for the fiscal year 2018.” With a multiple of 4 to 4.5, that means all of remaining Tronc might go for $450 to 550 million — if a single buyer can be found. Compare that to the $208 million the McCormick Media group was going to pay for a quarter of the company.

Consequently, the sport of the day — and the week ahead — will be watching that TRNC ticker. Up, down or steady — a steadiness perhaps indicating more immediate head-scratching — it’s the new game for the Michael Ferro watcher near you.

POSTED     June 18, 2018, 10:06 a.m.
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