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The struggling newspaper industry’s only hope seems to be consolidation. At least according to Gannett Co. (NYSE: GCI).
Gannett made an unsolicited bid for Tribune Publishing (NYSE: TPUB). The deal would have been worth about $815 million, including the assumption of debt. Had Tribune’s board of directors accepted the offer, Tribune shareholders would have received $12.25 a share in cash. That is a 63% premium to Tribune’s stock price before the offer.
However, the Tribune board rejected what it deemed was a low-ball offer on Wednesday afternoon.
“Tribune Publishing’s board has unanimously determined that Gannett’s opportunistic proposal understates the company’s true value and is not in the best interests of its shareholders,” a letter from the Tribune’s board stated.
Gannett shot back later in the day with its own statement asking Tribune shareholders not to support the company’s slate of director nominees at its annual meeting on June 2.
“We have initiated a proxy campaign to solicit ‘withhold’ votes in connection with the election of all eight nominees to the Tribune Board,” Gannett said in reiterating its commitment to the transaction.
Was the offer an opportunistic play by Gannett, or did Tribune just reject its last hope for survival?
Contrast in Fortunes
Gannett – with a nearly $2 billion market cap – is the largest newspaper publisher in the United States, with a 12% market share. Besides its flagship paper, USA Today, it owns 107 small- and mid-market dailies in 34 states and the U.K.’s Newsquest. The company is also the leader in digital media news.
Tribune comes in fourth with a 5% share of the print newspaper market. It owns 11 titles, including the Chicago Tribune. But its key property is the Los Angeles Times, which accounts for about 50% of Tribune Publishing’s business.
Besides being newspaper publishers, both companies have other similarities. Gannett was separated from the television properties of Tegna (NYSE: TGNA). Likewise, Tribune Publishing was spun off from the television assets of Tribune Media (NYSE: TRCO).
The difference is that Tribune Publishing, despite its focus on content, has fallen about 60% since the separation. Gannett stock has gained about 5.5% since its separation.
But Gannett is only the best house in a bad neighborhood. The traditional newspaper business is struggling in this new digital age. Total U.S. daily newspaper circulation fell to 41 million in 2015 from 44 million in 2009.
The trend is even worse as far as revenues go.
The U.S. Census Bureau reported that newspaper publishers saw total revenues fall 3.8% in 2015 to $27 billion, from $28.1 billion in 2014. The $27 billion figure is down an astonishing 44% from the $48.3 billion achieved in 2007.
Part of this rapid decline in revenue stems from the fact that most newspapers have failed to convert enough people from print into digital-only subscribers.
Gannett ended 2015 with just 125,000 digital-only subscribers. Tribune had a paltry 81,000 digital-only subscribers at the end of third quarter.
The newspaper company with most success digitally is The New York Times (NYSE: NYT). As of the end of 2015, it had 1.1 million digital-only subscribers. That allowed The Times to show a total circulation revenue increase of 1.3% last year. Revenues from digital subscribers soared 13.8%.
The newspaper stock, however, is still down about 8% over the past year.
Gannett: The Only Hope?
The question is whether Gannett can truly save the industry. It says that with its financial heft and digital media expertise it is the last best hope for the newspaper industry.
With regard to the Tribune offer, Gannett was attempting its biggest move since the separation of the TV assets. In effect, it was its largest attempted “save.”
Gannett believes a combination of the two companies would result in $50 million in synergies annually. The savings would be realized by eliminating duplication and bringing Tribune’s newspapers into Gannett’s vast printing and distribution network.
The expected synergies would likely happen. But the digital media question still is there.
Gannett says it has the expertise, but it badly trails The New York Times in the number of digital-only subscribers.
And let’s face it. Digital media ad spending is going disproportionately to new media companies like Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOGL). How much of the expected $200 billion global digital media ad spending in 2017 will go to newspaper companies like Gannett?
I’m keeping my fingers crossed. I’m an old guy – I actually like reading a physical local newspaper. But realistically, the present trends in media are likely to continue. That translates to continued difficult times for the newspaper industry.
Nevertheless, Gannett is likely the “Last Chance Saloon” for the industry.
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