Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Your move, Tribune Publishing.

Gannett on Monday raised its offer for the owner of the Chicago Tribune to $15 a share in cash, or around $860 million including net debt. The sweetened bid puts even more pressure on Tribune to finally come to the negotiating table.

Still Undervalued?
Tribune shares spiked as Gannett sweetened its offer to $15-a-share on Monday. The company hasn't traded for that kind of price since August 2015.
Source: Bloomberg

The newspaper publisher has spent the past few weeks complaining about how Gannett is trying to steal the company with a "low-ball" premium of 63 percent (now 99 percent), trotting out unrealistic trophy-price comparisons and setting up a poison pill to make a hostile takeover prohibitively expensive -- even as its second-largest shareholder, Oaktree Capital, urged sale talks.  

So now the question is, is it really about money for Tribune or does newly crowned chairman and largest shareholder Michael Ferro just not want to relinquish his throne? It's hard to see how a $15 offer isn’t attractive, financially speaking. Tribune sold 5.22 million shares (an about 16.5 percent stake) to Ferro for only about $8.50 a pop only three months ago. The company has so far failed to explain why that was a fair price -- and yet higher offers from Gannett undervalue Tribune.

Ferro and new CEO Justin Dearborn are banking on a new artificial-intelligence platform (called Tronc) to help turn the company around. The technology is meant to help the company make more money from its content by customizing the user experience and giving advertisers a more targeted audience. Who knows, maybe it will work and help Tribune grow the digital side of its business. But the vast majority of the company's revenue still comes from print and the outlook for that is bleak.  

Treading Water
Analysts are projecting at least three more years of falling revenue at Tribune Publishing.
Source: Bloomberg

Asking investors to put their faith in Tronc is asking for a bit too much -- especially when the technology could arguably be more valuable when applied to the broader suite of newspapers that would result from a Gannett combination.

Tribune says it will thoroughly review Gannett's revised proposal. The USA Today publisher's willingness to increase its offer signals there may yet be room for a further bump. A deal would still be accretive at even $20 a share, based on Gannett's projection of at least $50 million in annual cost savings, data compiled by Bloomberg show.

The next showdown will be at Tribune's upcoming annual meeting. Gannett is urging shareholders to withhold their votes for the company's proposed board slate as a sort of referendum on Tribune's strategy. Oaktree has also threatened a board fight if Tribune doesn't engage with Gannett. Preemptively engaging in negotiations with its suitor would be a well-received act of good will. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net