July 21, 2017 Last Updated 10:59 am

Why some media sales that look so promising fail to be closed

Several companies have been rumored to be for sale, others were more open about it, but completing the deal can be hard when factors such as debt load or possible spin offs complicate the process

The art of the deal in media I always found to be a natural thing: get a company that owns a particular title you want, and they probably feel is underperforming, and surprise them with an offer. Let the owner stew on it a little, probably counter offer, then walk away and wait. They inevitably come back and agree to your terms.

But when selling a public company whole things can get dicey. In fact, unless the offer is so good — that is, unless you are willing to over pay — it is often impossible to get the board and the shareholders to agree, especially if there is an alternative to a sale, such as a spin off.

That has happened several times to big deals involving publishers in just the past year or so. Tribune Publishing (now tronc) wouldn’t sell to Gannett; Time Inc. wouldn’t sell to Meredith; and now Fairfax Media has turned down its private equity pursuers.

The Australian publisher Fairfax Media earlier this year received tentative bids from the private equity companies TPG Consortium and Hellman & Friedman after previously announcing that it would spin off of its digital real estate business Domain.

For the board, its executives, and shareholders, the idea of owning stock in two separate companies, and securing fees and bonuses, is always an attractive proposition. Never mind that these spin offs usually result in the print publishing side of the business suffering.

But, in the end, the two private equity companies, after looking at the Fairfax books, decided not to make final bids. What they found would be interesting to know, but the board of Fairfax still had its original spin off of Domain option open to it, and so it announced it would proceed.

“We believe that our shareholders should be the beneficiaries of the value to be unlocked from our unique combination of assets and the strategic plans in place for each of our businesses,” Fairfax Chairman Nick Falloon said earlier this month on word of the failed takeover effort.

Some other potential sales have been scuttled due to debt or other factors.

When Gannett offered Tribune $18 a share, far more than the stock was trading before their efforts began, Tribune management had to deal with the fact that the company still had debt to pay off, and it was being pursued by a company with its own debt issues. New owner Michael Ferro has many reasons to want to continue to be in control, what with the fall election approaching, and so no deal could be complete, despite what looked like an attractive offer.

Tronc stock is now at $12.41, well below the $18 offer price, but still above the 52-week low of $8.76 a share.

Time Inc., too, has debt issues caused by Time Warner loading it down at the time of the spin off. So, a sale of the complete company might be hard. Two things are against it: not only the debt issue and a portfolio which is a split between weeklies and monthlies.

But unlike other publishers, Time Inc. could help solve its problems by selling off some of its attractive titles to buyers eager gain better positions in certain markets. But management has acted too slow, and now, with Rodale on the market, some potential buyers may feel they can swing a better deal. Nothing suppresses prices like over supply.

This quarter’s earnings may be among the most interesting in publishing in a while. I have heard from several sources that the back end of the calendar year does not look good for advertising, and if Q2 is weak, it means the final half of the year will be worse. There will be some companies who perform better, they may be the buyers in any sales completely in the final half of the year. Those who have weak first halves, and simply try to ride things out may find themselves in such a weak position that any strategic sales may end up being fire sales.

My own experience in M&A was formed not actually through an experience buying or selling a property, but with being part of a team looking at new launch.

While working at a newspaper group in Northern California, I was part of a team put together to look at launching a new regional title to add to the existing newspaper group. Things went well, until they didn’t. Then group think started to take over, and a certain momentum towards executing the launch appeared.

In the end, the company’s CEO rightly concluded that the launch was a bad idea, and the whole project was ended.

But it taught me that the best way to conclude a deal was to get it into the mind of the buyer or seller that a deal could happen, and wouldn’t it be exciting to complete it? Conversely, create a fear that the deal might fall apart and they will live to regret it.

The first couple of deals I was involved with found me not part of the negotiating team but part of the due diligence team. In both circumstances, I learned the value of good due diligence. That the Fairfax Media deal fell through at this stage shows that some companies are still taking due diligence seriously.

I once was part of a publishing company where the owner specifically instructed her CFO not to look into a deal, so much did she want to see it completed. In the end, the deal nearly sank the company, which sank anyways because this was a sign of just how much mismanagement was going on.

Another time, I initiated a purchase of a magazine and proposed the buy price, then when the target company rejected the deal was asked by the owners what we should do next? “Nothing” I said, they will come back, believe me. They did, because the target had been well selected, the company wanted the sale more than we wanted the acquisition, the perfect position to be in when negotiating the sale price. In the end, we got the magazine at the original offer price and the publisher I worked for would be making big money on that title today had they not shuttered the title after I left (I think they did it just because they were angry I had decided to leave). A few years later, realizing their mistake, they launched a new title in the same space.

But buying and selling entire companies is a whole other situation. Picking off titles that publishers don’t even know they own is easy compared to convincing a CEO to consider a sale of the entire company. Only one thing is a proven motivator in this situation: a giant payout when the deal is completed. It’s ugly, cynical, and the way things generally get done. Proving once again it is good to be on top, and not so good for the staff underneath.

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