March 26, 2019

Editor’s note: This post has been updated with a comment from Media News Group.

In its ongoing resistance to a takeover bid from Media News Group, better known as Digital First, Gannett offered a new line of defense Tuesday.

Deep in a letter to shareholders boosting its own slate of directors in a vote at its annual meeting May 16, the company claims that Digital First is actually trying to get itself acquired by Gannett.

The relevant passage:

“At a meeting that MNG finally agreed to join on February 7, 2019, and despite having 15 representatives in attendance, including financial and legal advisors, MNG continued to evade Gannett’s basic questions concerning MNG’s unsolicited proposal. MNG also repeatedly stated its desire for a ‘combination’ or ‘merger’ with Gannett, and never made specific mention of its unsolicited, all-cash proposal to acquire Gannett. While MNG later stated that it continues to pursue an acquisition of Gannett, MNG’s posture in the February 7 meeting further supported Gannett’s view that MNG is ultimately seeking to be acquired by Gannett. In fact, in the past, MNG has repeatedly approached Gannett seeking to be acquired, which Gannett has declined in all instances. We believe MNG is using its proposal as a ploy to open discussions for such a transaction. Given these facts, Gannett continues to question whether MNG is in fact a buyer or a seller.”

Digital First is owned by the hedge fund Alden Global Capital, which could advance money for a Gannett acquisition or tap into other funds.

But its stable of properties is mainly made up of smaller and weaker papers than Gannett’s 110. Many Digital First titles — like the Denver Post — have experienced especially extreme staff reductions. And despite its name, Digital First is notorious for failing to invest in content management systems and other technology — a strength of Gannett’s.

Gannett may well view the Digital First papers as damaged goods it wants no part of. And in a strategy shift announced more than a year ago, Gannett said that it now is mainly looking for acquisitions to boost its digital services business rather than buying more newspapers.

MNG’s January 14 bid was for $12 a share. It was immediately rejected by Gannett and has not been raised. Nor has there been any other bidder willing to offer a higher price. (Gannett shares were trading at $10.48 mid-morning Tuesday)

MNG has also nominated a slate of six directors for what will be an eight-person board at Gannett. Gannett’s letter to shareholders makes the case that its own nominees should be elected instead at the annual meeting in May.

Gannett may be viewed as vulnerable because CEO Bob Dickey has announced his retirement effective no later than May 7, and no successor has yet been named. Tuesday’s letter came from the chairman of the board, John Jeffry Louis.

On Tuesday, USA Today published MNG’s reply:

“Gannett’s Board is running on its track record of value destruction and declining profitability, and on a risky digital transformation plan that cannot compete with the immediate value that would be provided by MNG’s all-cash, premium proposal of $12 per share or any higher offer that may emerge. We believe our fellow Gannett shareholders deserve a board that is committed to running a full and fair process to maximize value now before further value is lost and any current premium is squandered and that is qualified to successfully run the business in the interim.”

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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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