Is it finally over? Maybe. At least for now, as Gannett formally withdraws bid to acquire tronc
Deal for the publisher of the LA Times and Chicago Tribune fails to get completed, with tronc saying Gannett could not secure financing for the deal
The attempt by Gannett to acquire tronc, formerly known as Tribune Publishing, has been as painful to watch as this election. Now, mercifully, both seem to be coming to an end, and the results will be the same: a mess.
The one sentence press release told us what was already known, and had driven down the stock price of both companies:
Gannett Co., Inc. (NYSE: GCI) (“Gannett” or the “Company”) today confirmed that the Company has been engaged in discussions with tronc, Inc. (NASDAQ: TRNC) (“tronc”) regarding a potential transaction and has determined not to pursue an acquisition of tronc.
tronc put the blame squarely on Gannett, saying that it doubted Gannett’s ability to finance the deal.
“We were informed early this morning that Gannett has decided to abruptly terminate discussions regarding a potential business combination with tronc,” the company’s statement said. “As noted previously, tronc had serious doubts about Gannett’s ability to finance a transaction that was in the best interest of tronc’s shareholders and other stakeholders.”
tronc’s statement goes on to say a few interesting things, including that the two publishers had agreed on a price in mid-September, but the hang up was the merger agreement after Gannett had trouble with financing.
“It is unfortunate that Gannett’s lenders made their decision to terminate their role in the transaction without the benefit of tronc’s third quarter financials or any future projections. tronc remained a constructive partner to Gannett as it sought to complete its financing for the agreed upon purchase price, however, Gannett was unable to do so and terminated discussions.”
tronc reports its earnings today, after the bell, and my guess right now is that the company has done whatever it could to make them look good. If so, watch out for those Q4 earnings.
A number of media reporters were oh-so-sure that a deal would be completed, and I guess I won’t spend much time saying “I told you so.”
Why didn’t the deal get done?
Well, for one thing, it was amateur hour over at Gannett. They came in early with a decent offer, but must have assumed that the new owners would be happy to take the money and run. That was a huge miscalculation. Maybe in NYC people do this, but here in flyover country, people actually like to own things. Power, combined with money, is important to Northsiders, and owning the remains of the Tribune Company is seen here as a big deal. Besides, they can always sell later.
Need an example of this kind of thinking? How about Groupon rejecting Google. I didn’t say it makes sense, or is the right thing to do, but it happens.
Look at that chart at right. This is not what you want to see. What you want to see is a bid, followed by a jump, followed by a quick conclusion to the deal. That clearly is not what happened.
My prediction was that if Gannett sat tight, and waited tronc out, without raising their bid, they could win the publisher after the election, and after a few nasty looking earnings reports from tronc.
Instead, Gannett’s earnings have looked weak, and their constant raising of the price meant the Chicago-based publisher had no reason to capitulate quickly. Besides, I’m sure Ferro and company enjoyed that Gary Johnson endorsement by the Tribune.
The other thing, though, is that it sounds like Gannett simply could not come up with enough cash to satisfy tronc. If the two parties had, indeed, agreed on a price in mid-September, and the deal was all cash, there is no reason to think the deal would not have been concluded. But a look at Gannett’s P&L says it is not generating loads of profits it would need to finance the deal this way. In fact, the company recorded a net loss of $24.2 million this quarter, though much of that was because the company keeps laying off people and must deal with the restructuring and severance costs.
Gannett still wants to consolidate the industry, and their plan was to do so quickly. To delay means more earnings reports that show declines. This might get ugly.
Meanwhile, LA Times and Chicago Tribune readers don’t have to worry about the paper’s websites being turned into those God-awful Gannett sites. At least for a little while.
As for the stocks of the two companies, tronc shares are down over 16 percent this morning, back to around $10 a share (those mad shareholders had their chance to sell, they better have done so), while Gannett stock at up a tick.