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Paper chain

25 April 2016 By Jennifer Saba

The great newspaper rollup has commenced. USA Today owner Gannett’s $815 million unsolicited offer to buy Tribune Publishing doesn’t just make financial sense for the buyer. It would also allow the target’s shareholders to escape flatlining revenue at a headline-grabbing 63 percent premium to its current market value.

The $2 billion Gannett has been on a buying spree since it was hived off from its U.S. local broadcast division, now known as Tenga, last June. It snapped up the owner of the Milwaukee Journal Sentinel, for example, for about $300 million earlier this month. The company disclosed on Monday that it approached the publisher of the Los Angeles Times and the Chicago Tribune about a deal on April 12. Chief Executive Robert Dickey said that so far he has been “disappointed” by the response.

It’s understandable that Tribune, led by Justin Dearborn, might initially be shy of new owners yet again. The Chicago-based operator has never fully recovered from the disastrous $13 billion sale to real-estate mogul Sam Zell almost a decade ago. He larded on so much debt that the company went bankrupt a year later and didn’t emerge until 2012.

The company has also just undergone yet another management change, instigated after Michael Ferro became its largest shareholder in February. But Tribune’s outlook is not rosy. Its own plans to buy rivals were squelched recently after trustbusters signaled they would fight its attempt to grab the publisher of the Orange County Register. And revenue is likely to decline in each of the next three years, according to Thomson Reuters estimates.

Gannett has better prospects. As the largest chain in the United States it publishes in more than 100 markets. That gives it greater ability to negotiate on newsprint prices and consolidate back-office and news-production functions. Tribune’s big city papers in Chicago, Baltimore and Orlando can feed into the national USA Today.

Gannett reckons it can cut $50 million of costs a year. Those are currently worth around $300 million to shareholders once taxed and capitalized and easily cover the $160 million premium it has put on the table. If Tribune’s owners don’t leap at the offer their papers could become tomorrow’s fish wrap.


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