Gannett's small purchase this week of a digital marketing company didn't get much attention amid all the Brexit turbulence. But its would-be takeover target
Tribune Publishing Tronc should pay heed.
The publisher of USA Today is spending $156 million to buy ReachLocal in a deal that will push its digital revenue toward $1 billion. Newspaper print advertising isn't exactly on an upward trajectory so digital investments make sense. But Gannett's $4.60-a-share offer for ReachLocal amounts to a 188 percent premium. That's a little nuts, considering ReachLocal shares hadn't traded anywhere near that price since November 2014. Of the three analysts who cover the company, only one has a price target and that's for just $2.60 a share.
Relative to ReachLocal's $320 million in expected revenue this year, the deal doesn't look terribly pricey. But this is a company that hasn't turned a profit in six years. Revenue has declined for the past two years and likely will again this year.
It's not a huge dollar amount, but the ReachLocal purchase is another reminder that Gannett isn't afraid to pay up in the name of consolidation -- even when the target company has had its fair share of challenges. And if a recent report from the New York Post is to be believed, Gannett is also getting ready to buy the Bergen Record and some weekly papers from North Jersey Media Group. Acquisitions are one of the few games left in town as newspaper publishers continue to try to cut costs, shore up whatever bargaining power is left with advertisers and try to stem revenue declines.
Gannett tried to do the same thing with Tronc (still hard to say that name with a straight face), offering as much as a 99 percent premium for a company that's had its own difficulties growing sales and turning a profit. It's still pursuing a hostile takeover after a larger-than-expected number of Tronc shareholders withheld their support for the company's slate of board directors.
ReachLocal's focus on marketing makes it a less-than-perfect comparison, but the price tag at least gives a hint as to how much Gannett might be willing to raise its offer if Tronc's management ever comes to the negotiating table. Thus far, the Chicago Tribune publisher has used just about every ploy imaginable to try to ward off its suitor, including diluting the voice of some vocal shareholders by issuing a big chunk of stock to an ally of chairman Michael Ferro and coming up with this dumb (sorry) Tronc rebranding.
A 188 percent premium to Tronc's unaffected share price would work out to about $22 a share. Incidentally, that's the exact same price that Tribune in May implied it might be looking for when it cited the median Ebitda valuation of a group of newspaper peers.
Gannett's latest offer was for $15 a share. It has little reason to go all the way up to $22, especially with Tronc's second-quarter earnings report coming up -- and the pressure is already bearing down on the company to start delivering on the results it's promised. But there's plenty of room to meet in the middle.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
ReachLocal will likely help replace Gannett's soon-to-expire agreement with GeoDigital, a digital marketing business that was packaged with the company's former broadcasting operations in its 2015 breakup, says Noble Financial analyst Michael Kupinski.
This calculation was based on Tribune's share count at the time, prior to the issuance of 4.7 million shares to Patrick Soon-Shiong's Nant Capital.
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