Gannett, owner of USA TODAY and more than 100 local news properties, said Tuesday it has ended its pursuit of Tronc, owner of The Los Angeles Times, an acquisition that would have created the country's largest newspaper publisher.
In a statement, Gannett CEO Robert Dickey said the deal would no longer make financial sense to complete. Tronc said the talks fell through because Gannett couldn't secure financing.
“While we have great respect for the Tronc employees and properties, and while we believed that the acquisition would have provided an attractive opportunity to expand the USA TODAY NETWORK quickly, in the end the terms were not acceptable,” Dickey said in a memo to employees. “That said, we remain fully committed to our strategy of expanding our local footprint and building the country's largest digital news network under the USA TODAY NETWORK banner. But as I've said before, we will not make acquisitions unless they are accretive to shareholders and the terms make sense for the company.”
Shares of Gannett, based in McLean, Va., rose 1% to $ 7.85 in morning trading. Tronc, which was known as Tribune Publishing until a recent name change, plummeted 19% to $ 9.74.
Tronc, which also owns Chicago Tribune and nine other dailies, said Tuesday it was informed early this morning that Gannett has decided “to abruptly terminate discussions.”
The companies had agreed to a purchase price in mid-September and worked to finalize an agreement. Last week, Gannett informed Tronc that its financing "encountered an unexpected delay," Tronc said. "It is unfortunate that Gannett's lenders made their decision to terminate their role in the transaction without the benefit of Tronc's third-quarter financials or any future projections."
"As noted previously, Tronc had serious doubts about Gannett's ability to finance a transaction that was in the best interest of Tronc's shareholders and other stakeholders," Tronc said. "Tronc remained a constructive partner to Gannett as it sought to complete its financing for the agreed upon purchase price, however, Gannett was unable to do so and terminated discussions."
Dickey first approached Tronc in April – then known as Tribune Publishing – by sending Tronc chairman Michael Ferro a private letter that outlined its offer to buy Tribune for $ 12.25 per share. Ferro, who became Tribune's largest shareholder in February by paying $ 8.50 per share for a 16.6% stake, immediately rejected the offer.
The offer was a key component in Dickey's strategy of consolidating the industry to gain "scale" Gannett believes it needs to battle industry challenges. With the newspaper industry struggling to reinvent itself for the digital age amid a print advertising decline, Gannett is betting that by amassing journalistic resources and market footprint, it can generate cost savings, compete more aggressively and offer more marketing and advertising services to local business customers. The company cuts costs by eliminating duplicative functions and finding other efficiencies. It has consolidated much of its copy desk and design functions in some locations, with editors and designers performing their duties for a multitude of Gannett properties.
After acquiring the Journal Media Group, publisher of the Milwaukee Journal Sentinel and 14 other dailies, for $ 280 million in April, Gannett turned its sights on Tronc, which has been financially struggling but operates some of the most prestigious brands in American journalism. The company's advertising sales fell 4.4% in the second quarter, contributing to a 1.8% revenue decline to $ 405 million. Tronc is expected to release its third quarter earnings report after the stock market closes Tuesday.
Ferro was initially resistant to the deal and refused to engage in talks, Gannett said. Unable to get a formal negotiation started, Gannett revealed the offer publicly on April 25. Less than two weeks later, Tribune's board unanimously rejected it.
Undeterred, Dickey and Gannett's board raised the offer to $ 15 per share in May, intensifying pressure on Ferro from some institutional shareholders to get the deal done.
Despite the nearly 100% premium offered, Ferro and his hand-picked CEO, Justin Dearborn — a longtime business associate of Ferro who was given the job shortly after Ferro became chairman — had other ideas for Tribune's newspapers.
To consolidate support, Ferro sought to enlarge and remake the board with his nominees. And in their escalating war of words, Gannett publicly urged Tribune shareholders to withhold their votes for the new nominees in June.
After Gannett missed the deadline to name its own candidates, Tribune said that all Tribune directors were elected by "a majority of the votes cast.”
In a move that was widely ridiculed on social media, the new board then approved a company name change to Tronc. Short for Tribune online content, the new name signifies the company's hard pivot to a strategy that relies on artificial intelligence software to better design, publish and distribute stories online, heightened profiling of readers and leveraging the Los Angeles Times brand.
Tronc will be “a content curation and monetization company focused on creating and distributing premium, verified content across all channels,” the company said.
To defend Tribune, Ferro also implemented a "poison-pill" strategy — one that would dilute Tribune's shares if a company buys more than 20% — and persuaded a white-knight investor, Los Angeles-based billionaire Patrick Soon-Shiong, to buy a 13% Tribune stake at $ 15 per share. Ferro and Soon-Shiong now own about 30% of Tronc.
Some shareholders weren't pleased with the defensive tactics. Tronc and Ferro were sued by shareholder Capital Structures Realty Advisors, which charged that Tribune's board breached its fiduciary duty to maximize shareholders' value in turning down Gannett's bid. Soon-Shiong and his investment entity, Nant Capital, were also named as defendants in the lawsuit.
Still, Gannett pressed on quietly, leaving the offer on the table despite the constant changes at Tronc and its defensive moves. Facing shareholder pressure, Ferro eventually chose to resume negotiating with Gannett.
"The board and management team of Tronc remain committed to taking the necessary steps to transform its business in response to the massive changes that have overtaken the publishing industry, supporting the company's outstanding journalists and, above all, delivering value to shareholders,” Tronc said Tuesday.
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