Deals

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

Tribune Publishing's shareholders could learn a thing or two from a company that sells Cinderella dresses and Frozen dolls.

No, we're not talking about giving away Disney princess outfits in a desperate bid to boost falling newspaper sales (although, who knows, maybe that's not the worst idea).

What we're getting at is the sudden emergence on the Tribune shareholder register of one Patrick Soon-Shiong. Four years ago, the billionaire was involved in a spookily similar situation at toymaker Jakks Pacific. That involvement didn't exactly turn out to be a game-changer for Jakks shareholders, with the shares subsequently falling 54 percent.

In fairness, that slump can't be blamed on Soon-Shiong. There were bigger problems at play for the toymaker. But the parallels with Tribune, owner of the LA Times and Chicago Tribune, are eye-catching nonetheless.

So let's recap what's happened at Tribune first. On Monday, it rejected a sweetened $15-a-share all-cash offer from Gannett as "clearly inadequate." And yet, it simultaneously agreed to sell Soon-Shiong's Nant Capital enough shares to become its second-biggest investor for -- drumroll, please -- $15 apiece. His 13 percent stake and new role as vice-chairman helps Michael Ferro, Tribune's biggest shareholder and chairman, shore up control of the company, just as Gannett pushes investors to withhold support for its slate of directors.

Paper Route
Gannett's pursuit of Tribune has pushed up the company's stock price.
Source: Bloomberg

Soon-Shiong's emergence also diminishes another large Tribune investor, Oaktree Capital Management, which is pushing for sale talks.

Meantime, Tribune struck an agreement with a Soon-Shiong company, NantWorks, to license technology that can do things like generate videos based on images in physical papers.  Ferro's plan to use tech -- or artificial intelligence in his grandiloquent description -- to extract more money from Tribune's readers is central to his argument that it's worth more than Gannett's bid (a 99 percent premium to the undisturbed price).

So how does this link back to Jakks? Well, in 2011, Oaktree (yes, the very same) went public with a $20-a-share takeover offer for the toymaker, which was rejected.

After a kerfuffle with an activist investor, Jakks agreed to meet Oaktree, but talks fell apart in June 2012. Just weeks later, Jakks announced a joint venture with NantWorks (the very same, once more). In this instance, the idea was to pair NantWorks' image recognition technology with toys to create interactive, life-like animation.  Soon-Shiong became Jakks' biggest shareholder.

Since the NantWorks venture -- called DreamPlay Toys -- was announced, Jakks shares have tumbled. On Tuesday, they traded at about $7.30, less than half Oaktree's offer. Rival Hasbro has nearly tripled over that stretch, while Mattel has been pretty much flat.

And Down We Go
Roughly $300 million in value has been wiped out at Jakks since Oaktree approached the company.
Source: Bloomberg

The NantWorks partnership didn't cause Jakks' slump. Much of the toy company's business is based on licensing, rather than proprietary products, giving it choppy results and weaker margins. And having tech-enabled toys can't hurt when everything is going digital.

But the partnership doesn't seem to have been as "transformative, ground-breaking or exciting" as Jakks CEO Stephen Berman said it would be in 2012. The company's revenue last year was roughly what it was in 2010. 

Charging Forward or Standing Still?
Analysts are projecting at least three more years of falling revenue at Tribune Publishing.
Source: Bloomberg

Toys and newspapers are different, of course. But it's a cautionary tale for Tribune investors being asked to throw away a sure thing in Gannett's all-cash offer and make a risky bet on Ferro's promise to turn around slumping sales and losses with AI. They'll want to be sure that isn't a fairy story.

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

  1. I'm not totally sure why you wouldn't just Google said-video or go to a website that has said-video embedded in a news story already -- but that's another story.

  2. One example was a set of Little Mermaid bongo drums. Through apps on tablets or smart phones, kids could see images of Sebastian the crab playing the drums and mimic his moves. 

  3. It's working to lengthen the time of its license agreements and smooth out its revenue performance, as well as cut costs and improve corporate governance. 

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

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net