Proposal Represents Substantial 41% Cash
Premium to Gannett’s 2018 Year-End Closing Price
Requests that Gannett Immediately Enter into
Discussions with MNG about a Strategic Combination
Calls for Gannett to Commence Review of
Strategic Alternatives to Maximize Value for all Gannett
Stockholders
Calls for Gannett to Commit to Moratorium on
Digital Investments
MNG’s 7.5% Ownership Stake in Gannett Makes It
Gannett’s Largest Active Stockholder
MNG Enterprises, Inc. (“MNG”), owner and operator of one of the
largest newspaper businesses in the U.S., with approximately 200
publications, today announced that its board of directors has sent
a letter proposing to acquire Gannett Co., Inc. (NYSE:GCI)
(“Gannett” or “the “Company”) for $12.00 per share in cash. The
proposed transaction would represent a cash premium of 41% to the
Gannett stock price as of December 31, 2018, and MNG has asked
Gannett to enter into discussions with MNG immediately about a
strategic combination. MNG also requested that Gannett immediately
commence a review of strategic alternatives to maximize shareholder
value, commit to a moratorium on the acquisition of any additional
digital assets, and commit to a feasible, strategic and financial
path forward before hiring a new CEO.
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the full release here:
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Charts A and B (Graphic: Business
Wire)
In the letter, MNG notes that the team leading Gannett has not
demonstrated that it is capable of effectively running it as a
public company, with the stock having lost 41% of its value since
its debut as a public company two and a half years ago. MNG also
notes in the letter that its interest in Gannett is a reaffirmation
of its commitment to the newspaper industry and its desire to grow
its newspaper business over the long term.
The full text of the letter that was sent to Gannett’s Board of
Directors on January 14, 2019 follows below:
January 14, 2019
Gannett Co., Inc.7950 Jones Branch DriveMcLean, Virginia
22107Attn: John Jeffry Louis III, Chairman of the Board of
Directors
To the Board of Directors:
MNG Enterprises, Inc. (“MNG” or “we”), through its managed
investment account, has a 7.5% ownership stake in Gannett Co., Inc.
(“Gannett” or the “Company”), making it the Company’s largest
active stockholder. We also are one of the leading Newspaper
operators in the U.S., with approximately 200 publications
including The Denver Post, The San Jose Mercury News, The Orange
County Register and The Boston Herald. Because we know how to
consolidate and operate successful newspaper businesses over the
long term, we have approached members of your Board and management
on multiple occasions about a potential strategic combination.
Despite our overtures, Gannett has not meaningfully engaged with
us.
Gannett has lost 41% of its value since its debut as a public
company two and a half years ago, significantly underperforming its
peer group and indices. [i] During this period, Gannett
suffered from a series of value-destroying decisions made by an
unfocused leadership team – overpaying for a string of non-core
aspirational digital deals and pursuing an ill-fated hostile for
Tribune Publishing, all while Gannett’s core revenue, EBITDA,
margins and Free Cash Flow continue to decline. With Gannett’s CEO
departing by May and its key digital executive leaving later this
month, there’s now an even greater leadership void. Frankly, the
team leading Gannett has not demonstrated that it’s capable of
effectively running this enterprise as a public company.
Gannett shareholders cannot sit by and watch further value erode
while the Board casts about for a strategy and a leader, especially
when there is an opportunity to maximize value right now. We
believe Gannett shareholders deserve better.
Accordingly, MNG proposes to purchase Gannett for $12.00 per
share, representing a substantial cash premium, and requests the
Board immediately take the following
actions to maximize value for stockholders:
- Enter into discussions with MNG
about a strategic combination;
- Hire an investment bank to conduct a
review of strategic alternatives, including a potential sale of the
Company;
- Commit to a moratorium on digital
acquisitions; and
- Commit to a feasible, strategic and
financial path forward before hiring a new CEO.
MNG’s proposal to buy Gannett for
$12.00 per share in cash, represents a 41% premium to where the
stock closed at YE 2018. [i] Such an acquisition,
subject to confirmatory due diligence, would provide a substantial
premium over Gannett’s $8.53 closing price on December 31, 2018 and
its closing price of $9.75 on January 11, 2019, and would provide
compelling and immediate cash value for stockholders. Further,
unlike other potential buyers, as a proven operator in the
newspaper business, we are able to provide a home for the Company’s
businesses and valued employees so they can continue to serve their
local communities. We do not believe that any material regulatory
issues would stand in the way of completing this transaction.
MNG has invested in Gannett because we see significant value in
Gannett’s assets, particularly its core newspaper business.
However, Gannett has been moving in the wrong direction, resulting
in a declining stock price and lack of confidence that the Board
and existing management are willing and able to take the steps
necessary to turn the Company around. Based on our industry
experience, we believe that it will be very difficult for Gannett
to address its operational and strategic issues as a public
company, and that a sale of the Company presents the best path
forward for Gannett stockholders, employees, business partners and
customers.
We are keenly interested in working constructively with the
Board, with the goal of getting to a successful transaction with
value, speed and certainty. We ask that the Board promptly
contact us to arrange an opportunity to discuss our proposal to
purchase the Company. We are not asking for exclusivity, and
believe that running a sale process open to other serious bidders
would be in the best interests of all stockholders. We believe that
our substantial “skin in the game” as a major stockholder, as well
as our extensive operational experience and successful track record
in the newspaper industry, enabling us to provide a home for the
Company’s businesses and valued employees so they can continue to
serve their local communities, should make our proposal
particularly compelling. Our interest in Gannett is a
reaffirmation of MNG’s commitment to the newspaper industry and our
desire to grow in the newspaper business over the long
term.
Who We Are
MNG runs one of the largest newspaper businesses in the U.S. by
circulation with approximately 200 publications including The
Denver Post, The San Jose Mercury News, The Orange County Register
and The Boston Herald. We are experienced newspaper operators
with a successful track record of acquiring newspaper businesses
and running them in a profitable and sustainable way.
Seasoned Newspaper Operators: This is a team of veteran
and seasoned Newspaper Executives that believe in what we are
doing. Our top 4 Executives have a total of 128 years in the
business, and an average of 32 years each. Our goals are simple: to
run profitable newspapers so they will be around to serve their
local communities well into the future.
Leading Industry Consolidator and Operator: MNG employs a
continued focus on consolidation of operations (real estate,
printing, shared services, IT, finance and administration), zero
based budgeting and rationalization of labor costs. A consolidation
strategy works when the consolidator is a best in class operator
and brings the most value to its targets. With one of the best in
class margins and a strong unlevered balance sheet, we are one of
the leading industry consolidators who are able to make
acquisitions of newspapers on our platform successful today and
well into the future. We also recognize the importance of our
valued employees to our success, and compensate our newspaper
operators well and incentivize them to thoughtfully maintain and
grow EBITDA the best way they know how, even in this challenging
environment of secular decline.
In stark contrast to Gannett’s declining EBITDA margins as shown
in Chart A, Chart B and Chart C, we have increased EBITDA margins
for each of the last 4 years, and have a consolidated EBITDA margin
near the top of the industry.
We Save Newspapers: When other people won’t step up, we
do. We save newspapers and position them for a strong and
profitable future so they can weather the secular decline.
Take our last two acquisitions – The Orange County Register and
The Boston Herald. Both papers were left for dead and put into
bankruptcy by their former owners, which could have caused a
liquidation and a loss of all the jobs. MNG stepped up and invested
in them when others wouldn’t, saving many of those jobs and
providing for new jobs. We improved operations and made them viable
and profitable by providing them with new leadership, a seasoned
executive team and a new strategy when others clearly had
failed.
Gannett is Moving in the Wrong
Direction
Gannett has not been successful as a public company investment.
The Company’s stock price has declined 41% from approximately
$14.37 to $8.53 since its spin-off from TEGNA Inc. (NYSE: TGNA) in
2015. [i] As shown in Table A, the
Company has trailed its media peers, proxy peer group, and the
S&P 500 index since its spin-off, underperforming the S&P
500 index by a staggering 67% over the past three
years.
Approximately 90% of Gannett’s Revenue and EBITDA is from
publishing. [ii] A lack of focus on managing the core business and
poor capital allocation have resulted in the business experiencing
a severe decline, with Adjusted EBITDA dropping by 31% from $472mm
in 2014 to a projected $328mm for 2018, and Free Cash Flow down
close to a staggering 50% from $274mm in 2014 to $145mm on a
trailing twelve month basis. [iii] We believe that Gannett’s
newspaper business could be improved and made more profitable by
optimizing the Company’s cost structure and showing discipline in
capital allocation with a goal of optimizing EBITDA and Free Cash
Flow per share every year. However, instead of focusing on its core
newspaper business and acting as the industry consolidator pitched
to investors at the time of the spin-off, the Company has spent
approximately $350mm on digital acquisitions since 2015. [iv] That
$350mm equates to over $3.00 per share, or 36% of Gannett’s entire
market capitalization. [i]
Despite the Company’s poor stock and operating performance since
the spin-off, the Company seems to be doubling down on its current
strategy. As we have heard from senior leadership, and as reported
in the news media, the Board appears to be looking for a new CEO
with a digital rather than newspaper background.
As Gannett’s largest active stockholder, with insight and
expertise in the Company’s core newspaper business, we ask the
Board to shift its focus away from questionable digital
acquisitions and finding a new CEO to pursue them, and toward
consideration of strategic alternatives. It is imperative to
act with urgency, as the Company is on its way to putting Gannett’s
stockholders, valued employees, and the local communities they
serve in jeopardy.
The Best Path Forward for Gannett – A
Sale of the Company
The Company is at a critical juncture. Its core newspaper
business is in decline. President and CEO Robert J. Dickey will
step down by May 2019 and Sharon Rowlands, the CEO of ReachLocal,
Inc., is leaving later this month, each of them a key figure in the
Company’s current strategy. The $350mm in digital acquisitions have
not yielded positive results in our view, with the Company
experiencing an extended period of stock price declines, poor
operating performance, and a substantial deterioration in EBITDA,
EBITDA margins, Free Cash Flow and free cash flow per share,
destroying more than $650mm of shareholder value. [i] Gannett now
trades at a meaningful discount relative to peers.
This has taken place while the Board has been driving the
questionable digital acquisition strategy (in part by compensating
senior officers based on contributions to the Company’s strategic
plan, including its acquisition strategy), the Company’s corporate
expenses and executive compensation have been consistently
increasing, and director stock ownership has been minimal,
undermining investor confidence that the Board’s interests are
aligned with stockholders.
We believe that a sale of the Company presents the best path
forward to maximize value for Gannett stockholders, rather than
attempting in full view of the public markets to address its
operational issues, find new leadership to pursue its unsuccessful
strategic transformation and regain the trust of a skeptical
investment community.
To reiterate, we believe that the Board should immediately take
the following actions:
- Enter into discussions with MNG about a
strategic combination;
- Hire an investment bank to conduct a
review of strategic alternatives, including a potential sale of the
Company;
- Commit to a moratorium on digital
acquisitions; and
- Commit to a feasible, strategic and
financial path forward before hiring a new CEO.
We request that the Board promptly contact us to arrange an
opportunity to discuss our proposal to purchase the Company. If the
Board refuses to engage with us in good faith and in a timely
fashion, we reserve our rights to take action to protect the value
of our investment, which may include seeking changes to the
composition of the Board. Put plainly, MNG is committed to
maximizing value for all Gannett shareholders and growing our
newspaper business over the long term.
We hope that the Board will work with us to maximize value for
all Gannett stockholders, and we look forward to receiving a
response in an expeditious manner.
Sincerely,
/s/ R. Joseph FuchsOn behalf of the Board of Directors, MNG
Enterprises, Inc.Chairman, R. Joseph Fuchs
Endnotes:[i] Based on closing price as of December 31, 2018.
[ii] Gannett’s Publishing segment Adjusted EBITDA contribution
to the Consolidated Entity is measured after allocation of
Gannett’s Corporate and Other segment Adjusted Expenses on the
basis of the segment’s revenue contribution; Data for the trailing
twelve months as of September 30, 2018.
[iii] Gannett’s Consolidated Adjusted EBITDA of $472mm in 2014
as disclosed in Company filings and $328mm as the midpoint of the
outlook range for 2018 Adjusted EBITDA as included in earnings
release on November 8, 2018; Gannett’s Free Cash Flow of $247mm in
2014 as disclosed in 2015 10-K and $145mm on a trailing twelve
month basis calculated from Company filings.
[iv] Gannett’s acquisition of ReachLocal for $162.5mm and
SweetIQ for $31.8mm as disclosed in the Company’s 2017 10-K;
Gannett paid approximately $145mm in cash to WordStream’s equity
holders as disclosed on July 2, 2018; Further consideration to
WordStream included up to an additional $20mm in potential cash
earn-out payments based on WordStream meeting certain revenue
targets and up to $6.4mm in cash payable upon the release of the
escrow and expense holdbacks.
About MNG Enterprises
MNG Enterprises, Inc. is one of the largest owners and operators
of newspapers in the United States by circulation, with
approximately 200 publications including The Denver Post, The San
Jose Mercury News, The Orange County Register and The Boston
Herald. MNG is a leader in local, multi-platform news and
information, distinguished by its award-winning original content
and high quality, diversified portfolio of both print and local
news and information web sites and mobile apps offering rich
multimedia experiences across the nation. For more information,
please visit www.digitalfirstmedia.com.
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ReevemarkPaul Caminiti / Hugh Burns / Renée Soto+1
212.433.4600MNGInquiries@reevemark.com
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