May 23, 2016

So Tribune Publishing Chairman Michael Ferro has brought on board a fellow biotech billionaire, selling Nant Capital about 13 percent of the company for $71 million in newly issued shares.

The investor behind Nant, Patrick Soon-Shiong, is Los Angeles-based and already owns a stake in the Lakers. So it makes sense that he could be buying into Ferro’s vision of building a global digital brand out of the Los Angeles Times’ entertainment and celebrity coverage.

Also, Forbes has reported that Soon-Shiong controls a company that owns a number of artificial intelligence patents now licensed to Tribune to develop its personalized news server, Tronc.

So shared business ambitions could very well been behind the deal — an obvious explanation is often the right one.

But I also entertain the possibility — mutual hostilities notwithstanding — that Gannett and Tribune are in fact deep in negotiations. This could instead be a step along the way to a higher offer than the $15 a share on the table.

Bear with me.

One way for Soon-Shiong’s $15 a share investment to pay off would be the ripening of Ferro’s transformation plans over a period of years, driving the stock way up.

He is taking a chance, however, that none of that pans out, Gannett withdraws its offer and Tribune shares fall back to the pre-takeover-bid level of $7.50 a share. (Granted, for a guy who sold his companies for $8.6 billion, that’s hardly going to wipe him out).

A third scenario is that Ferro provided Soon-Shiong with assurances that Gannett will increase its bid to $18 or $20 a share, essentially flipping the $71 million investment for a nice profit.

I began saying a few weeks ago that Ferro is either a stubborn, willful guy in love with his mystifying turnaround plans — or he is doing a great impression. Either way, it’s a shrewd negotiating posture.

And in high-stakes negotiations, the axiom is that it’s always darkest just before dawn. Escalating accusations and intransigence can be quickly forgotten once there’s a deal on the table.

Theories aside, the immediate effect of Ferro and Soon-Shiong’s deal is to screw the rest of Tribune Publishing’s shareholders. For the second time this year (Ferro’s own $44 million investment was the first) the value of their stock has been diluted by issuance of more shares.

Here is some fun math. The 12.9 percent dilution from issuing the new shares tracks a quick markdown of Tribune stock — 14.8 percent as the market closed.

The maneuver provides more fodder for proxy fights, a potential shareholder lawsuit against Tribune Publishing and yet more exotic volleys and counter-volleys.

The story could play out over years — great material for us news-about-newspapers junkies.

Then again, the bidding and deal could be over soon — raising the fascinating next question of what Gannett Chairman Bob Dickey would do with his prize.

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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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