NEWM New Media Investment Group Inc

Agreement and Plan of Merger with Gannett

 

On August 5, 2019, New Media Investment Group Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gannett Co., Inc., a Delaware corporation (“Gannett”), Arctic Holdings LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Intermediate Holdco”), and Arctic Acquisition Corp., a Delaware corporation and a directly wholly owned subsidiary of Intermediate Holdco (“Merger Sub”), pursuant to which, subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into Gannett, with Gannett continuing as the surviving corporation and a wholly owned subsidiary of Intermediate Holdco (the “Merger”).  In connection with the execution of the Merger Agreement, the Company also entered into the Amended and Restated Management and Advisory Agreement (the “Amended Management Agreement”) with FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), as described further under the heading “Amended and Restated Management Agreement” below.

The board of directors of the Company unanimously approved the Merger Agreement and the transactions contemplated thereby and the Amended Management Agreement following the recommendation of a transaction committee consisting solely of independent and disinterested directors of the Company, to which the board of directors had delegated all power and authority that may otherwise be exercised by the board of directors in reviewing, evaluating, and negotiating a potential transaction with Gannett.

Merger Consideration and Treatment of Equity Awards

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of Gannett (“Gannett Common Stock”) issued and outstanding immediately prior to the Effective Time (subject to limited exceptions, including shares as to which dissenters’ rights have been properly exercised in accordance with Delaware law) shall be converted automatically into (A) 0.5427 of a fully paid and nonassessable share of common stock, par value $0.01 per share, of the Company (“Company Common Stock”), and (B) the right to receive $6.25 in cash, without interest, plus cash in lieu of any fractional shares of Company Common Stock that otherwise would have been issued (collectively, the “Merger Consideration”).  Immediately following the Effective Time, holders of Company Common Stock will own approximately 50.5% of the outstanding shares of the Company and holders of Gannett Common Stock will own approximately 49.5% of the outstanding shares of the Company.

Pursuant to the Merger Agreement, at the Effective Time, Gannett stock options shall be cashed out based on the cash value of the Merger Consideration, less the applicable option exercise price; Gannett restricted stock units shall be converted into Company restricted stock units based on the value of the Merger Consideration, which will generally be subject to the same terms and conditions as applied to the original Gannett award, except that Gannett restricted stock units held by non-employee directors of Gannett shall be converted into the Merger Consideration; Gannett performance shares shall be converted into Company time-based restricted stock units based on the value of the Merger Consideration and assuming achievement of applicable performance goals in accordance with the terms of the Merger Agreement, which will generally be subject to the same terms and conditions as applied to the original Gannett award (other than performance-based vesting conditions); Gannett restricted stock awards shall be converted into the Merger Consideration; and Gannett phantom share units shall be converted into equivalent Company phantom share units, which will generally be subject to the same terms and conditions as the original Gannett award.

Governance Matters

At the Effective Time, the board of directors of the Company will be comprised of nine directors, consisting of five independent members of the board of directors of the Company, three independent members of the board of directors of Gannett and the Chief Executive Officer (“CEO”) of the Company.  The Company currently has three independent directors and is currently in the process of identifying two additional directors to serve on the board of directors of the Company.

Effective as of the Effective Time, the board of directors of the Company will create a committee whose responsibilities will be to assist the board of the directors in achieving the Company’s digital transformation (the “Transformation Committee”).  The Transformation Committee will be comprised of four directors, consisting of two independent members of the board of directors of the Company and two independent members of the board of directors of Gannett.

The parties have agreed to certain post-closing governance matters in the Merger Agreement.  At the Effective Time, the CEO of the Company will continue to serve as the CEO of the Company, and the CEO of Gannett as of the date of the Merger Agreement will serve as the CEO of all of the Company’s operating subsidiaries, provided such person is serving as the CEO of Gannett immediately prior to the Effective Time.

The Merger Agreement also provides that the Company’s operating subsidiaries will operate under the “Gannett” brand as of or within a reasonable time following the Effective Time.  In addition, from and after the Effective Time, Gannett’s headquarters in McLean, Virginia will serve as the headquarters of the combined company.

Conditions to the Merger

Consummation of the Merger is subject to certain closing conditions, including (i) the approval by Gannett’s stockholders and the Company’s stockholders (in the case of the Company stockholder approval, disregarding any shares held by certain affiliates of Fortress), (ii) the absence of any law, injunction or order prohibiting the Merger, (iii) the receipt of required regulatory clearances, including the expiration or termination of the applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and obtaining the necessary clearance from the European Commission, (iv) the effectiveness of the Registration Statement on Form S-4 to be filed by the Company pursuant to which the shares of Company Common Stock to be issued in connection with the Merger will be registered with the Securities and Exchange Commission (the “SEC”), (v) listing approval for shares of Company Common Stock to be issued in connection with the Merger on the NYSE and (vi) there being no changes made to the Amended Management Agreement following the execution of the Merger Agreement.

Termination

The Merger Agreement contains certain termination rights for each of the Company and Gannett, including, among others, the right to terminate the Merger Agreement (i) if the consummation of the Merger does not occur on or before February 5, 2020, subject to extension to May 5, 2020, if required regulatory clearances have not ben obtained but all other closing conditions have been satisfied (or are capable of being satisfied) at such time, (ii) if either party fails to obtain the approval of its stockholders, (iii) subject to certain conditions, to enter into a definitive agreement with respect to a Superior Proposal (as such term is defined in the Merger Agreement) prior to the receipt of the approval of its stockholders, or (iv) subject to certain conditions, if, prior to the receipt of the approval of the other party’s stockholders, the other party’s board of directors has changed its recommendation that its stockholders (a) in the case of Gannett, adopt the Merger Agreement, and (b) in the case of the Company, approve the transactions contemplated by the Merger Agreement.

Upon termination of the Merger Agreement under specified circumstances, including, among others, termination by Gannett to enter into a Superior Proposal, Gannett will pay the Company a termination fee equal to $45 million in cash.  The Company is required to pay Gannett a termination fee equal to $28 million in cash in reciprocal circumstances.

Certain Other Terms

The Merger Agreement contains customary representation and warranties of the Company and Gannett.  Between the date of execution of the Merger Agreement and the Effective Time, each of the Company and Gannett has agreed to conduct its business in the ordinary course of business in all material respects consistent with past practice and to comply with certain customary operating covenants.

During the period from the date of the Merger Agreement until the Effective Time, each of the Company and Gannett has agreed not to solicit, initiate or knowingly encourage alternative acquisition proposals from third parties and/or to provide non-public information to third parties regarding any alternative acquisition proposal, subject to certain exceptions.  In addition, each of the Company and Gannett has agreed to use its reasonable best efforts to cause the Merger to be consummated.

The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to this Form 8-K and is incorporated herein by reference. The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Gannett or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made solely for purposes of the Merger Agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s or Gannett’s public disclosures.

 

Amended and Restated Management Agreement

 

On August 5, 2019, in connection with the execution of the Merger Agreement, the Company and the Manager entered into the Amended Management Agreement.  Effective upon the consummation of the Merger, the Amended Management Agreement will replace the existing Amended and Restated Management and Advisory Agreement, dated as of February 14, 2014, between the Company and the Manager.

 

The Amended Management Agreement (i) establishes a termination date for the Manager’s services of December 31, 2021, in lieu of annual renewals of the term; (ii) reduces the “incentive fee” payable under the Amended Management Agreement from 25% to 17.5% for the remainder of the term; (iii) reduces by 50% the number of options that would otherwise be issuable in connection with the issuance of shares as consideration for the Merger, and imposes a premium on the exercise price; (iv) eliminates the Manager’s right to receive options in connection with future equity raises by the Company; and (v) eliminates certain payments otherwise due at or after the end of the term of the prior management agreement.

 

In connection with entering into the Amended Management Agreement and the occurrence of the Effective Time, the Company will issue to the Manager 4,205,607 shares of Company Common Stock. The Manager is restricted from selling these shares until the expiration of the Amended Management Agreement, or otherwise upon a change in control and certain other extraordinary events. The Company will also grant to the Manager options to acquire 3,163,264 shares of Company Common Stock. These options will have an exercise price of $15.50 and become exercisable upon the first trading day immediately following the first 20 consecutive trading day period in which the closing price of the Company Common Stock (on its principal U.S. national securities exchange) is at or above $20 per share (subject to adjustment), and also upon a change in control and certain other extraordinary events.

 

Upon expiration of the term of the Amended Management Agreement, the Manager will cease providing external management services to the Company, and the Manager will no longer be the employer of the person serving in the role of Chief Executive Officer of the combined company.

 

The foregoing description of the Amended Management Agreement is not complete and is qualified in its entirety by reference to the Amended Management Agreement, which is filed as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference.

 

Commitment Letter

 

On August 5, 2019, in connection with the execution of the Merger Agreement, the Company entered into a commitment letter (the “Commitment Letter”) with Apollo Capital Management, L.P. (“Apollo”), pursuant to which Apollo, on behalf of one or more funds, accounts or other clients managed by it or its affiliates, has committed to provide the Company with a $1,792 million first lien term loan facility (the “Acquisition Credit Facility”), to be made available to the Company upon the closing of the Merger, subject to certain terms and conditions set forth in the Commitment Letter.

The Acquisition Credit Facility will bear a fixed interest rate of 11.50% annually, subject to a one-year step-up of 50 basis points in the event that the closing of the Merger occurs more than 6 months following the date of the Commitment Letter. The Acquisition Credit Facility will mature five years following the closing of the Merger and will be freely pre-payable without penalty.

Proceeds from the Acquisition Credit Facility will be used to repay Gannett’s existing revolving credit facility, the Company’s existing revolving credit facility, and Gannett’s outstanding convertible senior notes to the extent put to the Company by the holders thereof, pay the cash portion of the consideration for the Merger, pay fees and expenses incurred in connection with the Merger and the Acquisition Credit Facility and, to the extent of any remaining proceeds, finance ongoing working capital and other general corporate needs.

 

The Acquisition Credit Facility is subject to negotiation of a mutually acceptable credit or loan agreement and other mutually acceptable definitive documentation, which will include certain representations and warranties, affirmative and negative covenants, financial covenants, events of default and collateral and guarantee agreements that are customarily required for similar financings. Additionally, Apollo’s obligation to provide the financing is subject to the satisfaction of specified conditions and the accuracy of specified representations. The documentation governing the Acquisition Credit Facility has not been finalized and, accordingly, the actual terms may differ from the descriptions in the foregoing summary of the Commitment Letter.

 

 

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