November 1, 2016

Tronc capped a very bad day Tuesday with a reasonably upbeat third quarter earnings report.

The company experienced the same sharp advertising downturn as erstwhile suitor Gannett and the rest of the industry. But executives say it remains on course for earlier earnings estimates because it’s keeping a close watch on spending.

Market reaction to those results, reported late afternoon, will come at the opening bell Wednesday morning. For the day, though, Tronc shares were again down by a double-digit percentage to $10.54, after Gannett formally withdrew its takeover offer.

In the month since the deal began to unravel, Tronc’s shares have now lost nearly 40 percent of their value.

CEO Justin Dearborn made the case that the company had been a good faith negotiator to the end. He bristled at a Wall Street Journal analysis headlined “Tronc got too greedy,” which criticized the company for not accepting a $15 a share offer Gannett put on the table in May.

But he was also candid in a conference call with analysts that the six-month hostile battle for control of the company was a costly distraction.

“We delayed implementation of some of our initiatives,” Dearborn said.  “We’re now three to six months behind.”

To be specific, Tronc held back on investments in artificial intelligence and machine learning technology, which it claims can revolutionize production and distribution of video content. (Video traffic was way up at its properties anyhow).

A less obvious impact, Dearborn continued, was that the potential merger has made it hard to hire and retain talent, including a sales force.  With Gannett promising huge savings once the deal went through, many worried they would get squeezed out in favor of Gannett’s own people.

When asked about the company’s next steps, Dearborn said it will be “a bit of a restart.”

Tronc has $187 million of cash on hand, Dearborn said, (slightly more than does Gannett).  Some of that could be deployed on acquisitions, he said.  “We are more interested in digital…but we would consider legacy (properties) as well.”

It’s worth remembering that Tronc (then Tribune Publishing) bought the San Diego Union-Tribune in May 2015. The company also came close to acquiring Freedom Communications and its Orange County Register in March before the Justice Department blocked its bid on anti-trust grounds.

So Tronc could find itself competing against Gannett and the acquisitive New Media Investment Group as regional properties and small chains come on the market over the next year.

After Gannett’s terse announcement first thing Tuesday that it was cutting off negotiations, the companies engaged in a tepid blame game.  Tronc issued a statement (repeated by Dearborn in the call) claiming that Gannett could have found financing had it tried harder.  Gannett countered that its lenders recently changed to less favorable terms — that is, a higher interest rate or new conditions.

Nonetheless, Dearborn, reading from a press release, also offered an olive branch of sorts:

We have repeatedly acknowledged that we must… undertake significant change to our business to address the challenging environment facing our industry.  We believe we must all remain united in support of the publishing industry, and to that end we will continue to be a good partner to Gannett across our many existing business relationships.

In particular, Gannett and Tronc are lead participants in a newly organized national sales effort, Nucleus, that has been slow getting off the ground since it was organized in April.

Gannett has seen a deep fall in its own share price as Wall Street gradually grew skeptical of the deal during a worse-than-expected year financially.  Both companies have some confidence rebuilding to do with investors.

Editor’s note: Poynter receives funding through a training partnership with Gannett. The company has no influence over our news content.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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