May 10, 2018

Tronc can probably currently lay claim to being the second most ridiculed and reviled U.S newspaper management company, at least among journalists. (Clearly, cheapskate Alden Global Capital and its Digital First group rank first).

But despite the sweet payouts to top executives, stop-and-start efforts at digital transformation and some disastrous leadership bungling at the Los Angeles Times, Tronc is the rare newspaper stock that has held its value and actually increased share price — for the year to date and also reaching back a full year,

So what do investors like about Tronc? Here are three things:

1. For starters, Tronc is about to get $500 million as it sells the Los Angeles Times and the San Diego Union-Tribune to L.A. billionaire Dr. Patrick Soon-Shiong ($590 million if you count his assumption of some pension debt).

CEO Justin Dearborn told analysts in a first quarter earnings call Wednesday evening that he expects the delayed deal, first targeted for completion in late April, to close within weeks or maybe a month. The offer expires Aug. 7.

And the hangup, Dearborn said, is not (as rumored a few places) the price. Rather it is sorting out the extremely complicated task of gradually weaning the L.A. Times away from functions that had been centralized over 20 years of ownership by Tronc and its predecessor Tribune companies.

Tronc is obligated by terms of the sale to offer those services for a year, Dearborn added, and may eventually have contracts with the new regime in Los Angles for some on into 2019 and beyond. There are 320 such arrangements, according to Dearborn.

Of course, there is a potential downside to the transaction for Tronc. By my calculation from figures Tronc announced at the time of the sale agreement, the company will lose roughly 31 percent of its revenue and a similar percentage of profits when the L.A. Times and Times-Union depart. It will come under pressure to deploy some of the $500 million for acquisitions and the rest to strengthen the company.

2. Mercurial owner and chairman Michael Ferro is gone.  He resigned from the chairmanship and the board in February,  just ahead of a Fortune magazine report of #MeToo sexual abuse accusations from two women. Ferro is also selling his 26 percent stake in Tronc for $208.6 million to a group headed by the Tribune's founding McCormick family.

Ferro's departure came up twice in Dearborn's conference call with analysts. Tronc chose to expense Ferro's entire three-year $15 million consulting contract last quarter. So the company, which otherwise would have operated at break even, instead posted a loss of more than $14 million.

Dearborn was also asked about the impending sale of Ferro's stake, announced in April. That deal too has not closed yet.

Dearborn channeled Sarah Huckabee Sanders in his answer. That's a private transaction, he said, so not management's business. Dearborn would expect to hear from the buyers when and if the deal is completed — but he has had no conversation with them yet.

From an investor's viewpoint, two good things can come of the McCormick deal. Since their name is effectively on the door, especially in Chicago, they may invest in and revitalize the company (following through on the best of current initiatives) and centering on the flagship Chicago Tribune.

And/or they may sell off other papers and digital sites in the chain like the Baltimore Sun or Hartford Courant to local investor groups or another chain. Even if such sales were not at a comparable premium price to Soon-Shiong's, that could amount to a nice payday for shareholders.

Dearborn did not say, but I will, as Ferro departs: for all his eccentricities, Ferro did pretty well by shareholders as well as further enriching himself. (The sale price to the McCormick group was $23 a share when shares were trading at about $18 publicly)

3. In the sort of transaction that reporters and editors tend not to notice, Tronc acquired a majority interest in BestReviews this February.  The price was not specified, but that is where some of the proceeds of the sale to Soon-Shiong are going.

Like the New York Times Co.'s Wirecutter, Best Reviews is a product rating service from which users can order directly. That is a sunrise business. Also, like Wirecutter, Best has a large user base already and will contribute welcome revenue now and perhaps much more in the future.

So, simplifying a little, Tronc is walking the walk of digital transformation on the business side. The company is getting out, on very attractive terms from the declining legacy L.A. Times (sorry, journalists) and redeploying capital into a growing digital business.

Gannett is doing a version of the same, targeting acquisitions that are add-ons to its ReachLocal digital marketing services and platform company.

Having opined a little already, let me close with a gratuitous thought: If the McCormick group does take control and stay for awhile, perhaps they can change the name of the company back to Tribune Publishing  or Tribune Media  — discarding the dumb-sounding and still meaningless Tronc as a relic of the Ferro era.

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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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