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April 25, 2016, 2:58 p.m.
Business Models

Newsonomics: After Gannett’s $815 million Tribune bid, here are eight things to look out for

How big would Gannett become? Is resistance futile?

How shocking is Gannett’s now-public, hostile move to buy Tribune Publishing for $815 million? Entirely, and then not at all.

The news world has lost its compass and, as the ads say, past performance is no guarantee of future performance. The pressure on news creators is growing more intense, producing a media chill for everyone from BuzzFeed to the Financial Times. (I discussed some of these issues this morning with Tom Ashbrook.) If flat was the new up, as publishers liked to joke (in less dire times), then volatility is the new stability. Here are eight questions for today.

Is Michael Ferro’s resistance futile? Ferro, who bought control of Tribune Publishing just three months ago, famously believes he’s the smartest guy in the room. At Tribune HQ, staffers have made Trumpian comparisons to the man who intended to use Tribune to reinvent news as we know it. “I wouldn’t sell for $50 a share,” he told those who asked if his January purchase of 16 percent of the company was intended to be a quick flip.

If Gannett buys Tribune, a quick flip it would be, with Ferro standing to make more than $20 million on his $44 million investment. Fifty dollars was hyberbolic; Gannett has offered $12.25 a share, and will sweeten that a bit if it needs to. Ferro doesn’t want to sell, but stalling a sit-down with Gannett’s Bob Dickey also serves the tactical ability to increase the price. Ferro took quick control of what seems to be a hapless Tribune Publishing board, and it went his way fast, letting CEO Jack Griffin go in less than a month. Those same board members know they will face more hostility — and likely lawsuits — from shareholders than from Gannett, or Ferro, if they refuse to make a deal. Expect a deal.

Is it over? It’s tough to see these financials — with Gannett’s 63 percent premium — working out well for other possible buyers or (see below) for Gannett itself. Bob Dickey says the company has sufficient financial capacity to pull off the deal, but he may have another deal in his back pocket. While the Florida and Chicago purchases make the most strategic, cost-saving sense, selling the LA Times — to Eli Broad, perchance — may follow, reducing costs and concentrating cost savings in Gannett-owned geographic clusters. On the sidelines: Apollo Global Management, which almost bought Digital First Media last year. Apollo, known not to be a company that does hostile takeovers, approached Tribune last fall, but then-board chair Eddy Hartenstein and CEO Jack Griffin refused to negotiate. With hostility now in the air, will Apollo step back in? How about an Apollo deal for Tribune, and then a sale of the LA Times to Eli Broad?

How big would Gannett become? Gannett is already the largest newspaper publisher in the U.S. by revenue (it also owns big regional Newsquest in the U.K.) In Tribune, it would pick up the third- or fourth-largest publisher in the country. Here are official circulation numbers, via quick work from the Alliance for Audited Media:

Gannett total circulation: 45,518,663
Total number of Gannett brands: 107
Tribune total circulation: 17,362,488
Total number of Tribune brands: 19

Following a Tribune deal, Gannett would be able to count about 62 million in total official circulation.

Does Gannett know what to do with metros? It’s got the national USA Today, certainly, but then Detroit, Louisville and Des Moines make up other larger markets. This deal, then, is a huge departure for Gannett, as it has avoided big metros until now. Tribune is the ultimate big metro company, and its poor financial performance over the years show it. Metros underperform dailies overall, so both management of these papers and improving Gannett’s financial performance will be tough.

What is Gannett’s secret sauce? Its balance sheet: It’s got the best one in the public sphere of the industry. The company has always known how to cut costs, and continues to do so with its serial acquisitions. That only goes so far, though, and only helps for a couple of years. Gannett shares the same revenue woes as its brethren: In the fourth quarter, its revenues were down 9.7 percent and earnings were down 18 percent. We can say that Gannett has half a strategy in place, and Bob Dickey believes he’ll figure out the other half by 2020. In the meantime, consolidation is the name of this game.

When they say USA Today everywhere, do they mean it? It’s hard to imagine USA Today national news inserts in the Chicago Tribune and L.A. Times. Never say never, though. More than four dozen Gannett dailies sub the USAT product for their own local news judgment of which national news counts for their readers. Publishers and editors in Gannett cities tell me their readers like the product and national/local split, but it may be harder for metro readers to stomach.

Why does Florida matter in this deal? Gannett has long wanted the Orlando Sentinel and Sun-Sentinel in southern Florida. That would make it Florida’s second biggest newspaper publisher, with 12 papers, most of them dailies. That’s a lot of cost consolidation and savings. Gannett might then try to pick up the neighboring Miami Herald, whose owner McClatchy is struggling to find its own future.

Will the DOJ be as interested in this deal as it was in the $15.8 million deal that stopped Tribune from buying the Orange County Register? Probably not. We don’t see the same kind of within-metro business overlap. And national advertising for Gannett and newspapers is small, so market domination arguments probably won’t play. Still, the Department of Justice would review, but probably not stop, the merger. As for the diversity of voices question: That’s not the DOJ’s purview; it’s all of ours.

Photo of Gannett headquarters by Shashi Bellamkonda used under a Creative Commons license.

POSTED     April 25, 2016, 2:58 p.m.
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