Deals

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

Tronc Inc. has found a target to satisfy its deal hunger, but to what end?

The owner of the Chicago Tribune and the L.A. Times announced late Monday that it was adding the New York Daily News to its stable of newspapers. Tronc is paying a symbolic $1 for the tabloid -- the same price readers pay for a single issue -- but it will also assume a reported $100 million-plus of pension and operational liabilities. Tronc investors seemed pleased with the deal, pushing up the shares as much as 2.6 percent on Tuesday before it settled back down to being roughly flat as of 1:45 p.m. New York time.

On the Hunt
Tronc has been hunting for targets for awhile now. It finally sealed the deal with the New York Daily News.
Source: Bloomberg

This deal makes more sense than Tronc's pursuit of a Chicago newspaper monopoly or its reported interest in celebrity-gossip magazine Us Weekly. The Daily News at least has some real, you know, news. Adding a New York title  -- especially one with 25 million unique monthly online visitors like the Daily News -- could help Tronc pitch itself to national advertisers. But this deal is yet another sign that the only real idea most newspaper publishers have for generating meaningful growth is to buy it.

Tronc was supposed to break itself out of that rut with its fancy plans to use artificial intelligence to hook more users and better pitch them products. Total revenue for TroncX, the division that encompasses all of the company's digital efforts (and yes they really call it that), fell 5 percent in the second quarter. Subscriptions are rising, but advertising revenue is slumping, with declines reported in every quarter but one since the company started breaking out sales for TroncX in the second quarter of 2016. Whups.

No Rock Stars Yet
Tronc's digital revenue has stumbled as advertising sales decline
Source: Bloomberg

Tronc has made improvements to its profitability since Chairman Michael Ferro got involved last year, and it will likely find synergies in the Daily News purchase. A New Jersey printing facility that's included in the deal offers the most promise, with the opportunity to consolidate operations for Tronc's other East Coast papers and perhaps sell the services to other newspapers. But this seems unlikely to make a material difference to Tronc from a financial perspective; it will soon need another deal and then another.

It feels a little like trying to use a piece of paper (a newspaper, if you will) to slow the flow of water down a drain. It doesn't really work.

Round Two?
Gannett reportedly offered around $18 a share for Tronc in the final stages of deal talks. Tronc shares have averaged a little more than $13 a piece since Gannett walked away.
Source: Bloomberg

Ferro has talked about wanting to turn journalism into a "rock-star business," and honestly, more power to him. I hope he succeeds. But the best option for Tronc had for doing that was probably the merger with Gannett Co. that fell apart last year after Ferro kept pushing for a higher price and the acquirer reportedly ran into financing pushback. That deal could still happen. Gannett needs it, too.  

But for now, round and round the Tronc deal merry-go-round we go.

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