Gannett And Rival Close In On Deal -- WSJ
July 19 2019 - 3:02AM
Dow Jones News
By Cara Lombardo and Dana Cimilluca
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 19, 2019).
USA Today publisher Gannett Co. is nearing a deal to combine
with rival GateHouse Media, people familiar with the matter said, a
move that would join the nation's two largest newspaper groups by
circulation at a time local media is in a battle for survival.
The companies are grappling with a brutal environment for local
newspapers around the country. Private-equity-backed GateHouse has
a reputation for aggressively slashing expenses at titles it
acquires.
Local papers have suffered particularly sharp declines in
circulation compared to national outlets as readers look elsewhere
for news and classified ads disappear. They have also lost more of
their online-advertising business to tech giants such as Facebook
Inc. and Alphabet Inc.'s Google.
Nearly 1,800 newspapers closed between 2004 and 2018, leaving
200 counties in the U.S. without a paper and roughly half the
counties in the country with only one, according to a University of
North Carolina study. That has stoked concerns that a crucial
source of reporting around the country is being starved.
These trends have sparked consolidation and prompted financial
investors to hunt for bargains as they accumulate empires that can
benefit from economies of scale -- derived in large part from
layoffs.
GateHouse and Gannett are discussing a cash-and-stock deal in
which GateHouse's parent would likely buy Gannett and GateHouse
Chairman and Chief Executive Mike Reed would assume the same roles
at the enlarged entity, according to the people familiar with the
matter.
Gannett has been without a permanent chief executive since May,
when former CEO Robert Dickey retired. He had led the company since
2015, after Gannett split its newspaper-publishing business from
the company's broadcast-television stations.
Since the split, factors buffeting the industry have eaten away
at the company's value. Gannett's shares have lost nearly half
their value as the company struggled to develop a strategy to
revive its sagging fortunes. Gannett made a failed attempt a few
years ago to buy the Chicago Tribune's publisher, now known as
Tribune Publishing Co.
It couldn't be learned what the price of a deal with GateHouse
might be. Gannett shares closed at $7.90 on Thursday and rose
nearly 8% after hours when The Wall Street Journal reported that a
deal between the companies might be close. One could be announced
in the next few weeks assuming the talks don't fall apart, the
people familiar with the matter said.
The Journal reported in May that Gannett had held merger talks
with GateHouse, whose parent is the publicly traded New Media
Investment Group Inc. Gannett has also held talks about a potential
deal with McClatchy Co.
New Media is smaller than Gannett, with a market capitalization
of about $550 million compared with Gannett's roughly $900 million
value, although it has deep-pocketed backers. New Media is operated
by private-equity firm Fortress Investment Group LLC, which is
owned by Japanese telecommunications-and-investing giant SoftBank
Group Corp.
Gannett has also recently considered a deal with Tribune, but
determined a combination with GateHouse would provide more
opportunities to cut costs -- ultimately as much as $200 million a
year, or roughly twice what a Tribune tie-up could yield, some of
the people said. That would be an unusually big number for a deal
of this size, likely reflecting GateHouse's belief that a big chunk
of overlapping costs are ripe for cutting.
It is likely that a substantial portion of synergies would stem
from layoffs, but also from other factors such as consolidating
printing presses.
A merger would give Gannett a far wider geographic footprint to
sell digital advertising through its USA Today network and help
speed the companies' reorientation away from print.
Together, Gannett and GateHouse publish some 265 daily
papers.
GateHouse is currently the largest newspaper publisher in the
U.S. by titles owned, with 156 dailies and 464 weeklies, most of
which are in small markets. It is No. 2 by circulation, behind
Gannett, which owns 109 dailies including the Arizona Republic,
Milwaukee Journal Sentinel and Indianapolis Star -- in addition to
its flagship USA Today.
GateHouse has been on a buying spree recently, spending close to
$1 billion in recent years acquiring dozens of small and
medium-size papers around the country -- including the Palm Beach
Post and the Austin American-Statesman.
Gannett earlier this year rejected a $12-a-share buyout offer
from Digital First Media, partly on the grounds that it didn't
appear to have credible funding, and later defeated Digital First
in a proxy fight for board seats. Digital First's hedge-fund backer
had built a 7.5% position in Gannett's stock and argued that the
company was being mismanaged and should consider its offer or look
for another buyer. The hedge fund, Alden Global Capital LLC, has
since cut that stake to 4.2%, according to FactSet.
--Lukas I. Alpert contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com and Dana
Cimilluca at dana.cimilluca@wsj.com
(END) Dow Jones Newswires
July 19, 2019 02:47 ET (06:47 GMT)
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