Our take: What Digital First’s bid for Gannett means

January 14, 2019
Category: Business & Work

Is the end of Gannett, as we know it, at hand?

A hedge fund, known mainly for operating newspaper properties on the cheap, is trying to take over Gannett, the nation’s largest publicly traded newspaper company.

Here are some updates and some context:

What’s the latest? The Wall Street Journal’s Sunday scoop that a bid was in the works has now happened. First thing Monday morning MNG, which operates its papers as Digital First, announced it was offering $12 a share, a 23 percent premium on Gannett’s closing price Friday. A rich hedge fund, Alden Global Capital, owns MNG. This would be a $1.36 billion deal if accepted. Gannett replied only that its 10-member board of directors will consider the bid.

Is this likely to happen? It is no sure thing. The 23 percent premium will be attractive to shareholders who have seen Gannett’s value falling, but it’s not huge (Rupert Murdoch offered nearly double the share price when he bought Dow Jones and the Wall Street Journal a decade ago). Also, Digital First has accumulated only 7.5 percent of Gannett stock, not enough of a stake to exert much leverage.

How would Digital First propose to run Gannett better? By slashing costs in 100-plus local newsrooms and elsewhere in the operation. The deep cuts of the news staff at Digital First’s flagship Denver Post last year prompted an outcry from the journalists there. The Post’s editorial page editor (who subsequently was forced to resign) published a section protesting the move. Digital First also has a record of not investing in content management systems and other technology. Analysts call this a milking strategy: harvesting profits while not caring about a sustained future.

So Gannett’s news effort could be decimated? Probably, yes. The Denver Post staff went down to 60 —  painfully small to cover a growing major metro of almost 3 million.

What are the main properties that would be affected? The company’s largest regional papers include the Arizona Republic, the Milwaukee Journal Sentinel, the Des Moines Register, The Tennessean and the Louisville Courier Journal. Plus, of course, USA Today and the USA Today Network that feeds content to the largest regional papers and creates national investigative projects with those papers.

What will Gannett do? If management and the board had liked the offer, they would have simply accepted and announced a merger when terms were completed. That did not happen. That makes this an attempt at an unfriendly takeover. Gannett can choose to turn the offer down. Or hold out for a higher bid from Digital First. Or seek out another  investment infusion. Merging with another public company like McClatchy or Tribune is not out of the question.

Who is in charge and who will decide at Gannett? A slightly sore subject. CEO Bob Dickey announced in December his intent to retire by May of this year. Sharon Rowlands, who ran the company’s ReachLocal subsidiary and other non-newspaper digital companies, left in January. The board would have a big role deciding in any case —  but especially with top management in flux.

Are there precedents? Except for Murdoch and the Journal, not really. Historically, mergers in the industry have been done with willing buyers and sellers —  in other words, on friendly terms. Gannett and GateHouse have acquired a number of individual papers and smaller chains in this way. When Gannett attempted a hostile takeover of Tribune Publishing in 2016 it was rebuffed by chairman and controlling investor Michael Ferro.

Would this deal set off others? Possibly. A combination of McClatchy and Tribune was explored this fall, but for now has been dropped. However, at many of the other public newspaper companies —  the New York Times, McClatchy and A.H. Belo (owner of the Dallas Morning News) — family members control a majority of the voting shares. Hence they are insulated from takeovers in a way Gannett is not.

Besides cutting costs, what else would Digital First change? A letter to shareholders sharply criticizes digital acquisitions of recent years. It asks that the company not do any more (CEO Dickey’s announced strategy) while the offer is under consideration and hints that existing ones could be offloaded. So, ironically, given the Digital First name, the bidders seem to want a refocus solely on the newspaper business.

Is Digital First equipped to run Gannett? That is debatable. It claims experience in acquisitions but the only ones in recent years were of The Orange County Register and Boston Herald. Swallowing and integrating a company much larger in revenue than it is with more and bigger dailies would be an entirely different proposition.

How is Wall Street reacting? Gannett shares jumped up at the opening bell and by midday were trading at $11.65. That is a lot closer to the $12 bid than to the $9.75 Friday close. So investors seem to be betting a deal will happen at the offer price or a higher one.

What can Gannett journalists do about all this? Dickey suggested in a brief letter that they should go about their jobs as usual. These bids typically extend over three to six months —  longer if the company resists vigorously.

Correction: MNG offered Gannett $12 a share Monday, a 23 percent premium on Gannett’s closing price Friday. An earlier version of this story offered a higher percentage MNG offered in its press release, but that was compared to Gannett’s end-of-the-year price. We apologize for the error.

Related: The WSJ reports that Digital First Media is eyeing Gannett for purchase