Gannett CEO's Medical Leave Raises Concerns About Company
June 18 2009 - 1:55PM
Dow Jones News
Concerns about the future of the nation's largest newspaper
publisher, Gannett Inc. (GCI), have intensified this week after the
company said Chief Executive Craig Dubow will go on extended
medical leave for a second round of back surgery to treat an
undisclosed, spine-related ailment.
A doctor told the company that the 54-year-old will likely be
out of work for four months to address his persistent back problem,
said Gannett spokeswoman Tara Connell, who declined to provide more
details but noted that Dubow could return to work sooner than
expected.
Dubow's absence comes as Gannett and the rest of the newspaper
industry suffer a sharp, financial decline because of the global
recession and rise of digital media. Gannett and its counterparts
are now scrambling to find new business models as the industry
undergoes mass layoffs and newspaper shutdowns.
Meanwhile, rumors are circulating about a fresh round of
lay-offs and salary cuts at Gannett stemming from a recent post on
a well-known blog operated by a former company employee called
Gannett Blog. Connell wasn't immediately available to comment on
the post.
Shares of Gannett have traded down by about 10% since the
company announced Dubow's leave of absence following Monday's
closing bell. The drop outpaces the declines of other media stocks
and the overall market.
Gannett shares fell Thursday 7.3% to $3.57.
Since Dubow took over in July 2005, the stock has fallen roughly
95%. All newspaper stocks have plummeted in value during that time,
and most observers stop short of faulting Dubow's leadership for
the company's misfortunes. Nevertheless, the decline happened on
his watch and the questions now surrounding his health, at a time
of crisis for the company, have led some to wonder whether he will
return to the helm.
"People were asking about the company's succession plan even
before [Dubow's absence]," said Ken Doctor, a newspaper analyst
with Outsell Inc. "The big question is what kind of company will
Gannett be in the future and what kind of person is going to lead
it."
Gannett, for its part, fully expects Dubow back later this
year.
"There's no thought here that this is anything but a temporary
absence [for Dubow]," Connell said.
Dubow will remain chairman of the company's board during his
leave, but Gannett's chief financial officer, Gracia Martore, has
taken over the chief executive role. Her leadership is widely
viewed as a stabilizing force, because the 57-year-old has overseen
the company's most immediate priority: restructuring Gannett's $3.7
billion debt load to avoid a cash crunch.
Still, both Dubow and Martore have received criticism for
building up the company's debt load in order to repurchase shares
at high prices. Fitch Ratings analyst Mike Simonton said Gannett
had "more work to do than most" in order to ease short-term
liquidity concerns because of its heavy exposure to short-dated
debt instruments.
John Rogers, chief executive of Ariel Investments, Gannett's
largest shareholder with a 12.25% stake, believes company officials
when they say Dubow will return.
"[Dubow] is a young man, and they've been so straightforward
with me in the past," Rogers said. "I take them at their word that
he'll be back in full force."
Rogers said he remembers Dubow experiencing discomfort in
meetings, but he had no idea that his health situation was this
serious.
"I've never experienced anything quite like this," Rogers said
about Dubow's unexpected absence.
That said, Dubow's leave of absence hasn't changed Ariel's view
on Gannett's prospects as an investment.
"Gannett has solid franchises like USA Today and CareerBuilder
that are unique and will benefit when the economy recovers and the
ad dollars come back," said Rogers, who is known in the investment
community as a contrarian. "We think the stock is extraordinarily
cheap, and we have a lot of confidence in Craig, Gracia and the
board."
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
nat.worden@dowjones.com