Sun-Times owner buys $44 million stake in rival Tribune
Chicago tech entrepreneur Michael Ferro has craved to own The Chicago Tribune but settled for the smaller and more financially pressed Chicago Sun-Times.
Now he's got a piece of both, with an activist stance at Tribune virtually assured.
In a deal that is a surprise only on the surface, the 49-year-old is purchasing a 16.5 percent share of Tribune Publishing, which owns the Tribune, Los Angeles Times, Baltimore Sun, Hartford Courant and seven other dailies. As part of the deal he becomes non-executive chairman of the company and its largest shareholder after a $44 million investment.
He will step down from the board of Wrapports, the Ferro-run parent of The Sun-Times and the weekly alternative Chicago Reader. "In connection with the deal, he has relinquished any operating involvement with the Chicago Sun-Times," according to a release. He retains his majority stake in Wrapports.
Ferro was part of a local group of businessmen who bought The Sun-Times in 2011. Several were board members of the nonprofit Chicago News Cooperative (which I helped found), including Ferro, respected private equity kingpin John Canning and longtime local newspaper executive Bruce Sagan. Sagan will now oversee The Sun-Times in place of Ferro.
The tabloid has struggled, like most papers, though a greater spotlight has been placed on the travails of the market's No. 1 paper, the Tribune. Various Ferro-led digital and print efforts to expand its reach nationally have not succeeded, while he took his name off the paper's masthead last year in what was seen internally as an unpublicized apparent attempt to publicly distance him from the paper.
The Tribune was spun off with the other Tribune Company papers in 2014, as the old Tribune Company's vast broadcast properties became a separate entity, Tribune Media. Tribune Publishing's stock has fallen sharply and multiple events, including the firing of its publisher in Los Angeles, have raised doubts about its strategy and leadership.
Ferro was a beneficiary of the dot-com boom and sold a software firm in 2006 for $292 million. He also bought a stake in a healthcare tech firm, Merge Healthcare, and sold it to IBM last year for $1 billion, though it had yet to record any profits. His personal stake was worth about $240 million.
He's always desired to own the Tribune and, along the way, sought to cut Sun-Times expenses in a deal that now sees the Tribune print The Sun-Times. The notion of ultimately seeking to merge the two papers was at times discussed by Ferro and his partners.
A Tribune deal such as one with Ferro has been rumored. One theory is that Tribune Publishing CEO Jack Griffin has sought to protect his own position by essentially making a sale of the company more challenging. He'd do so by giving someone else, like Ferro, a de facto blocking position if other, unwanted suitors came the company's way. Ferro is now the largest shareholder, surpassing Oaktree Capital.
As has been well reported, Griffin rebuffed overtures from billionaire Los Angeles philanthropist Eli Broad and then-Times publisher Austin Beutner to bid for the company's Los Angeles flaship. That was one reason that Griffin and the company board dismissed Beutner.
But Ferro is very ambitious and in a different financial stratosphere after his IBM deal. He has important and respected allies in the Chicago business community, including the savvy Canning, who would crave The Tribune if a convincing long-term market strategy could be devised amid the sharp industry downturn.
"This is a vote of confidence in our strategy and gives us further capacity to accelerate it,” Griffin said in a statement.
But it remains unclear, given doubts about the execution of that strategy, whether Griffin has essentially let a fox into the hen house.
Under the deal, Ferro cannot his increase his Tribune Publishing stake to more than 25 percent in the next three years.
In a phone call with analysts, Griffin said that the added investment positions the company to make acquisitions. Tribune is one of three potential bidders, who have indicated interest in acquiring Freedom Communications and its Orange County Register in bankruptcy proceedings.
Tribune Publishing also announced that it was suspending its dividend to shareholders. Together with the Ferro investment, diluting existing stock, this caused shares to fall by roughly a quarter in mid-morning trading to $6.75.