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Gannett Bid for L.A. Times, Rest of Tribune Publishing, May Be Hard to Reject (Analysis)

Gannett
AP Photo/Jacquelyn Martin

The proposed purchase of Tribune Publishing by America’s largest circulation newspaper chain, Gannett, would not only expand the thrift-minded news behemoth, but also push it into the kind of big city news markets, in Los Angeles and Chicago, where it has previously not ventured.

Gannett, publisher of USA Today, revealed that it has offered $815 million for Tribune, publisher of the Los Angeles Times, Chicago Tribune and nine other dailies. Analysts and people with close knowledge of Tribune’s finances said they thought it would be difficult for the company to reject the $12.25 per share offer, a 63% premium over Tribune’s closing stock price last Friday.

The combination of the two chains could set up a cultural clash, though, between Gannett – whose 107 local news organizations focus mostly in small and mid-sized communities – and the operators of the Los Angeles Times and Chicago Tribune. In Los Angeles, in particular, publishers and editors of the Times staged a series of pitched battles, for more than a decade, against their corporate overseers at the Chicago-based Tribune company.

Most of the fights between the L.A. paper and the Midwestern corporate parent centered around the size of the Times’ staff. A number of Times publishers and editors resigned, mostly as they fought to stave off newsroom cuts ordered by executives in Chicago.

Those feuds were inevitably settled by the massive flight of print advertising from the newspaper business, where revenue has sunk to levels of the ’50s. The L.A. paper, which once had nearly 1,200 editorial employees, now has just over 400, according to two individuals with knowledge of the news operation. The package deal, putting the Times with ten other papers for just $815 million, comes less than a decade after entertainment mogul David Geffen offered $2 billion for the Times, all by itself.

Ken Doctor, a media analyst with Newsonomics and Politico Media, said it would be hard for the Tribune board to turn aside Gannett’s premium. “It’s a very aggressive bid,” Doctor said. “The shares have not seen that price since last August. If you are a shareholder, you are going to want to get out.” A failure to accept the bid, or one that was clearly superior, could expose the board to a shareholder lawsuit, said two individuals familiar with Tribune company.

Tribune did not respond to a request for comment. Its official statement said: “The Board is now engaged, with the assistance of its advisors, in a thorough review. The Board is committed to acting in the best interests of shareholders and will respond to Gannett as quickly as feasible.”

Investor Michael Ferro grabbed control of the company in January with a $44 million investment that gave him a 16.6% stake in Tribune. He made pronouncements about remaking the newspaper business, but quickly alienated some in the L.A. Times newsroom when his front-office regime snapped up all the tickets to this year’s Academy Awards – forcing journalists to beg for a couple of tickets so they could cover an event central to their beat.

Ferro is not the only significant holder of Tribune Publishing stock, though. Two Southern California investment outfits, Oaktree Capital Management and Primecap Management of Pasadena, own a combined 26.6%. Doctor and two others with close knowledge of Tribune finances said they found it hard to imagine those investors wouldn’t push for the Gannett deal.

There are few others likely to step forward to buy the entire chain in the highly distressed newspaper industry, though Apollo Capital Management made a bid for Tribune last fall, which then-CEO Jack Griffin and then-chairman Eddy Hartenstein reportedly rejected. It’s possible Apollo could try to better Gannett’s bid.

But with Gannett in the driver’s seat, it begs the question of how the chain that publishes USA Today and papers like the Detroit Free Press, Des Moines Register and Arizona Republic would treat the L.A. Times which, even in its diminished state, operates one of the biggest and most ambitious newsrooms in America. Last week, the newspaper won a Pulitzer Prize for its coverage of the terrorist attack in San Bernardino. And it’s star columnist, Steve Lopez, was a finalist for a Pulitzer.

Many in the Times newsroom and active in Los Angeles civic affairs have hoped for years that a local white knight – billionaire philanthropist Eli Broad is most often mentioned – would buy the newspaper and return it to local control for the first time since the ’90s.

Tribune rejected Broad’s bid last September for the Times and the San Diego Union-Tribune. The billionaire had previously been allied with another powerhouse L.A. investor, Austin Beutner, who had been serving at the time as publisher of the Times. After the Chicago corporate masters turned aside Broad’s bid, they soon ousted his ally, Beutner, and installed a new publisher from the Tribune corporate fold.

Broad did not respond to a request for comment Monday about his potential continuing interest in acquiring the Los Angeles paper. Other local magnates who once considered buying the Times, including Geffen and supermarket investor Ron Burkle, have not shown any recent interest.

Doctor said Times managers might once again clash with a new out-of-town corporate master, this one from the Washington suburb of McLean, Virginia.

“The Times has had a history of strong editors, a strong editorial culture and a sense of itself,” Doctor said. “There was a sort of arrogance and readers benefited from that in a way in terms of some great journalism over the years. And they also lost out because the Times was slow to change as quickly as it probably should have.”

Current Tribune ownership hit a major stumbling block in its bid to remake the Southern California news operation when the Justice Department rejected the company’s bid to acquire the Orange Country Register, out of concerns over anti-competitive practices. The two papers went, instead, to Digital First Media, operator of cut-rate papers ranging from the Pasadena Star News to the Long Beach Press Telegram and South Bay Daily Breeze.

One observer familiar with the Times’ operations said the paper should have been able to come up with an arrangement to assuage monopoly concerns, so that it could go ahead with the purchase of the Orange County and Riverside papers. That acquisition had been a major underpinning of the company’s future strategy.

“That deal might have made the stock go up. It certainly would have put Tribune and the Times in a stronger position,” said the observer, who declined to be named. “It’s harder to compete with success. If they had succeeded, it might have been harder for Gannett to come in. But it’s easier to compete with a loser.”