Coverage: Tribune Publishing rejects Gannett $815 million offer

Tribune Publishing Co.’s board of directors rejected Gannett Co.’s unsolicited $815 million offer, calling the offer an “opportunistic” bid.

Roger Yu of USA Today, which is owned by Gannett, had the day’s news:

Tribune Publishing, which owns the Los Angeles Times, Chicago Tribune and nine other daily newspapers, said Wednesday its board of directors has rejected Gannett’s $815 million offer to buy the company.

“Tribune Publishing’s board has unanimously determined that Gannett’s opportunistic proposal understates the company’s true value and is not in the best interests of its shareholders,” Tribune said in a statement.

Tribune shares rose 4.4% to $11.50 in after-hours trading.

On April 25, Gannett, which owns USA TODAY and 107 local news properties, revealed its offer to buy Tribune Publishing for $12.25 per share and assume $390 million of Tribune’s debt, bringing the total value of the bid to $815 million. Gannett CEO Robert Dickey, who submitted the offer in a private letter to Tribune’s board on April 12, said he chose to go public with the offer due to Tribune’s “continued refusal to begin constructive discussions with us.”

Tribune’s board has since hired bankers to review the offer, but its management has maintained that it prefers to run the company on its own with a new strategy formed by Michael Ferro, the company’s chairman and its single-largest shareholder, and Tribune CEO Justin Dearborn.

“Tribune Publishing is in the early stages of a compelling transformation, with a well-defined strategic plan to drive increasing monetization of our important brands, capitalize on the global potential of the LA Times and significantly accelerate our conversion of content to revenue through an enhanced digital strategy,” Dearborn said in a statement Wednesday.

Lukas I. Alpert of The Wall Street Journal gave some insight into why the offer failed:

Gannett, which owns USA Today and 107 U.S. dailies, went public on April 25 with its proposal to acquire Tribune for about $400 million and the assumption of debt, saying it was frustrated by the company’s slow response. Gannett’s chairman, John Jeffry Louis, said Tribune’s announcement “reaffirms our concern from the outset that Tribune’s Board never intended to engage with us.”

“It is unfortunate that Tribune’s Board would deny their shareholders this compelling, immediate and certain cash value by rejecting our offer without making a counterproposal or otherwise negotiating or providing any constructive feedback,” he said in a statement.

In a letter to Gannett CEO Robert Dickey, Mr. Dearborn said that Tribune is “in the very early stages of an exciting and compelling strategic transformation,” through an enhanced digital strategy.

Tribune had argued it was simply asking for more time to hire financial advisers to review the offer ahead of its first-quarter earnings—the first to be presented under a new management team—during which the company planned to lay out a new digital strategy.

“The board is confident in our ability to generate shareholder value in excess of Gannett’s opportunistic proposal through our focused execution of this stand-alone plan,” Mr. Dearborn said.

On a call with analysts, Mr. Dearborn explained that the company would be reorganized into three groups—the legacy publishing business, a digital content and advertising platform business, and a globally expanded Los Angeles Times that will serve as the core of the company. To that end, he said the Los Angeles Times would open overseas bureaus in seven countries this year and forge strategic partnerships with other companies in other markets.

Tribune said Gannett’s offer valued the company at a lower earnings multiple than recent transactions for the Financial Times and Washington Post, particularly based on Tribune’s new 2016 guidance for earnings before interest, taxes, depreciation and amortization of $166 million to $172 million. Analysts had projected an average estimate of $142 million in Ebitda for Tribune for the year, according to FactSet. Some of Tribune’s big shareholders have said they are interested in making a deal but that Gannett’s offer is too low, according to people familiar with the matter.

Robert Channick of the Chicago Tribune explained how Tribune Publishing is planning a series of changes to help revamp its strategies after a first quarter loss:

Tribune Publishing reported a first-quarter net loss of almost $6.5 million, or 22 cents a share, compared with net earnings of $2.5 million, or 10 cents a share, in the year-ago period. Items affecting the quarter included a pretax $8 million charge related to an employee buyout program and $14 million in restructuring and transaction costs.

On a call with investors, Dearborn said Tribune Publishing’s plan would substantially increase revenue and valuation.

Among the initiatives is the creation this year of seven international news bureaus in Hong Kong, Seoul, Moscow and other “entertainment” markets, headed up by Davan Maharaj, publisher and editor-in-chief of the LA Times.

The company also announced performance-based pay increases for editorial staffers across Tribune Publishing, beginning in the third quarter.

Dearborn also talked about an artificial intelligence system to build audience profiles, feed suggested content and keep viewers on Tribune Publishing websites longer. He said the system is expected to roll out across all Tribune sites this year and could generate “hundreds of millions of dollars” in incremental advertising revenue.

Advertising revenue was down 4.4 percent in the first quarter to $215 million. Without the San Diego Union-Tribune, which was acquired in May 2015, ad revenue was down 12.4 percent.

The company reported adjusted net income of $7 million, or 23 cents per share. First-quarter revenue was flat at $398.2 million. Excluding the San Diego Union-Tribune, Tribune Publishing’s first-quarter revenue fell more than 7 percent to $368.7 million.

McLean, Va.-based Gannett spun off as a stand-alone newspaper company in June 2015. Gannett owns more than 100 newspapers including the Detroit Free Press, Cincinnati Enquirer, Des Moines Register, Arizona Republic and Milwaukee Journal Sentinel, which it acquired last month.

Ferro became Tribune Publishing’s largest shareholder in early February, when his investment firm, Merrick Media, bought a 16.6 percent stake in a $44.4 million deal. Oaktree Capital Management, a Los Angeles-based investment firm, is the second-largest shareholder, at 14.8 percent.

Tribune Publishing spun off from Tribune Media, its broadcast parent company, in August 2014. The stock price has fallen dramatically since it was issued at $25.50 per share, with Ferro buying more than 5.2 million newly issued shares at $8.50 each three months ago.