June 2, 2016

Faithful followers of Gannett’s operatic takeover fight to acquire Tribune Publishing will know that this is a decision day — Tribune’s annual meeting will determine whether Gannett got any traction in urging a no-confidence vote in the company’s management.

Gannett has been encouraging shareholders to withhold approval of Chairman Michael Ferro’s slate of directors. The outcome of the vote will be consequential, though my best guess is that the meeting itself may disappoint as high corporate drama.

The particulars: The annual meeting will be at the Los Angeles law offices of Sidley Austin, a big international firm headquartered in Chicago. It will begin at 9:30 a.m. and is scheduled to run until 11 a.m. Shareholders can hold their votes until the close of the meeting, but most will have voted earlier electronically.

Tribune Publishing must report the results within four business days. As a practical matter, it could probably do so shortly after adjournment.

So far, so dull, but here are six morning-after scenarios that could point to a likely outcome of the fight:

  • Shareholders support Gannett — If a majority votes to withhold approval of the directors slate, that amounts to a vote of no confidence in Ferro’s plans and a nudge to go ahead and strike a deal with Gannett. Since Ferro and new investor Dr. Patrick Soon-Shiong together control more than a quarter of the stock, put those shares in the approve column. If Gannett gets a good percentage of the rest, it can spin the result as an indicator of independent shareholder dissatisfaction.
  • Shareholders support Tribune Publishing — Major institutional holders Oaktree Capital and Towle & Co, with a little less than 20 percent of shares between them, have expressed dissatisfaction with Ferro and with the dilution of their investment when new shares were issued to Soon-Shiong. I would expect Oaktree and Towle & Co to be withhold votes, and they likely won’t be alone: Last night, The Wall Street Journal reported that shareholders Lampe, Conway & Co. and Mount Flag also intend to withhold their votes.

    But if they have little company, Ferro can justifiably crow that he has majority backing. (Gannett itself, according to one of its filings, has only about 1,000 shares).

  • Gannett quits — Gannett has said that it will re-evaluate whether to pursue the takeover after the results from the annual meeting are revealed. If Ferro and his friendly crew of directors are in for the next year, it could make sense to walk away. That also sets up the possibility that shares will fall from $11.59 down to pre-takeover-bid levels of about $7.50 — and maybe further, if Tribune Publishing’s financial reports for the rest of the year disappoint. Such declines, could, in turn, rekindle takeover interest.
  • Gannett (and its allies) sue — They have already planted the seeds with accusations that management is breaching its fiduciary duty by not giving more serious consideration to Gannett’s latest bid of $15 a share, which amounts to a nearly 100 percent premium over the trading price when the takeover effort began. I’ll leave the merits of that potential case to the lawyers. It certainly can be argued that Ferro and Soon-Shiong built their position in the company on the backs of other shareholders not offered the same deal. On the other hand, there is precedent for declining an offer if the depressed stock value can be built back up in a reasonable period.
  • Gannett ups its bid, and a deal is struck — I laid out this possibility in May. Dueling and saber-rattling press releases could be a cover for ongoing negotiations – though the tenor of the public fight points to Ferro wanting the chance to execute his plan rather than cash out. I attach some significance to to language in Oaktree and Towle & Co.’s filings urging that the board negotiate a higher offer from Gannett (not to accept the one that is on the table). That could be the endgame.
  • The mystery option — Both sides have sprung unexpected maneuvers on short notice. Who knows for sure what more they may have in their respective arsenals?

Whatever the outcome of today’s meeting, it might at least yield new insights into Tribune’s proposed business strategy. Tribune Publishing, as best I can understand, is not obligated to use the meeting to reveal any additional specifics of its plans for a global entertainment site launched from the Los Angeles Times or for Tronc, its artificial intelligence “content monetization engine.” Management might choose to, however. Those details, remarkably vague to date, will need to be spelled out sometime.

I’m quoted in an Associated Press story previewing the meeting as saying that the Ferro plan is not very persuasive and, at best, would take a long time to develop. What is clear is that Tribune has become a “story stock” – not much cause in the fundamentals for optimism, but some may buy into the notion that doing something — anything — radically different from the industry’s downward revenue trajectory is worth a try.

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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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