February 4, 2016 Last Updated 3:34 pm

Following $44.4M investment, owner of the Sun-Times becomes largest investor in crosstown rival Tribune Publishing

Tribune would still like to acquire the Orange County Register to bolster its SoCal holdings, but investors may be beginning to signal their frustration with the publisher

The principal owner of the Chicago Sun-Times, Michael Ferro, has invested $44.4 million in Tribune Publishing, the publisher of the Chicago Tribune and Los Angeles Times. The two companies in the fall of 2014 worked out a deal where Tribune Publishing acquired six daily and 32 weekly suburban newspapers from the Sun-Times, while the Sun-Times received a new printing and distribution deal through its crosstown rival the Tribune.

Chicago Tribune Sun-Times newspapersFerro will now step down as chairman of Wrapports LLC, the owner of the Sun-Times, though he will continue as the publisher’s largest investor. The Sun-Times, a tabloid, will be put into a holding company, with investor Bruce Sagan as chairman.

“I am excited to be working with the Company’s award-winning brands. I see tremendous upside to create value and put Tribune Publishing at the forefront of technology and content to benefit journalists and shareholders,” Ferro said in the announcement of the deal.

Ferro now joins the Tribune Publishing Board of Directors as Non-Executive Chairman after his private equity company Merrick Media, LLC acquired 5,220,000 shares of TPUB common stock.

Tribune states that the money will be used to support acquisitions and digital initiatives, but the company is down to $41 million in cash, and today the Board of Directors said it will suspend the company’s quarterly cash dividend (though the scheduled February dividend will be paid).

“This transaction supports key elements of our ongoing strategic plan and provides our Company with additional capital to accelerate our growth strategies,” said Tribune Publishing CEO Jack Griffin. “We continue to evaluate growth opportunities where we can achieve measurable, value-enhancing synergies that drive financial contribution and maximize shareholder value.”

Both newspaper companies have been is disarray in the past few years. The Sun-Times circulation has gone from just under 350,000 on weekdays a decade ago, to 183,504 in its latest audit report.

Tribune Publishing, meanwhile, was spun off as a separate company from the Tribune Company in August of 2014, but was saddled with $350 million in debt (it has just under $400 million now). The company’s stock has lost more than half its value in the past year.

Nonetheless, the company has tried to grow, acquiring the San Diego Union Tribune for $73 million in cash and $12 million in stock in May of 2015. The company is now assumed to be interested in acquiring the Orange County Register, a company that briefly flirted with expanding into the LA market.

TPUB 1year stockTribune Publishing meanwhile, needs cash and a couple good quarters. It now has some cash, but is unlikely to be able to produce the good quarters. The publisher reported a loss of $3.4 million in its Q3 earnings report, and while overall revenue rose a bit thanks to the Union-Tribune acquisition, revenue fell 9.6 percent when that paper was pulled out of the report.

Tribune Publishing has been slow to implement new digital strategies. Denise Warren, who left the NYT in October 2014 after her job was split into new positions, came on board in June of 2015 as President of Digital and CEO of the East Coast Papers. With a base salary of base salary of $625,000, and having bought on other digital talent from the NYT, the only visible result so far has the been the introduction of a Flash flipbook evening edition at the Tribune.

Rumors have swirled about the newspaper company possibly moving to sell its LA properties, though this seemed unlikely as conflicting rumors were that the company was interested in Freedom Communications, the publisher of the Register and The Press-Enterprise in nearby Riverside. Freedom Communications declared bankruptcy last year, and will now conduct an auction for the two newspapers that would result in a sale by March 31. Bids are due by March 11. (Whoever buys the papers will likely not come close to helping its owners payoff the company’s $214 million in debts.)

But investors in Tribune Publishing are apparently running out of patience. The Tribune is reporting that today’s investment will allow Los Angeles-based Oaktree Capital Management to sell its 18 percent stake in Tribune Publishing. That move may have been spurred by last year’s firing of the publisher of the LA Times, local LA executive Austin Beutner, who was co-founder, President and co-CEO of Evercore Partners. An ugly separation occurred last year after Beutner was seen as wanting to acquire TPUB’s Southern California papers himself, along with another investor.

Tribune Publishing has not yet set a date for its year-end earnings report, though it said it might announce a date next week. Its current guidance is that it should hit its revenue guidance given at the beginning of the year (though that did not include the Union-Tribune), while its EBIDA guidance is a bit lower than what was forecast a year ago.

Michael FerroFerro’s interest in Tribune Publishing is likely the same as it was in the Sun-Times, to influence Chicago area politics, and he was able to do that by investing only about half the amount TPUB spent on buying the Union-Tribune.

Ferro is the founder and CEO of Merrick Ventures LLC, a Chicago-based private equity firm, and since the acquisition of the Sun-Times, the paper has been a loyal mouthpiece for north shore interests – something the Tribune has been for over a century. Chicago may be a blue town, but its media is strongly aligned with the Republicans. It’s another election year, and as witnessed with the recent acquisition of the Las Vegas Journal Review, monied interests are not subtle in their maneuvers. Back in May of 2013 rumors swirled that the Koch Brothers were interested in acquiring the Tribune papers after the spin-off of the newspapers had been announced, though opposition to their ownership quickly was voiced.

Update: Investors are not buying it. On a day when the stock market was generally up, TPUB’s shares got hammered – losing $1.02 or 11.33 percent to close the day at $7.98. The company’s shares are now worth only a third what they were when they debuted on the exchange in 2014.

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