Tribune Company’s board on Wednesday unanimously turned away the Gannett offer “after thorough consideration,” saying that it believed the $815 million cash bid for the ten-newspaper chain was too low.
“After thorough consideration, the Board has unanimously concluded that it is not prepared to engage with Gannett about a combination of our companies based on the value you indicated in the Proposal,” Tribune CEO Justin C. Dearborn said in a letter to Gannett executive Robert Dickey. “The Board believes that the price reflected in the Proposal understates the Company’s true value and is not in the best interests of our shareholders.”
The offer translated to $12.25 a share and represented a 63% premium over the price of Tribune shares, which had slipped to below $8. Shares of Tribune had jumped up on the buyout news.
Gannett executives had gone public with their bid in an attempt to pressure the Tribune board into accepting the offer. Chicago-based Tribune said it had engaged independent financial and legal advisers to measure the merit of the deal.
Tribune’s Dearborn said in a statement that the company has plans of its own that will create more value for shareholders.
“Tribune Publishing is in the early stages of a compelling transformation,” the statement said, “with a well-defined strategic plan to drive increasing monetization of our important brands, capitalize on the global potential of the LA Times and significantly accelerate our conversion of content to revenue through an enhanced digital strategy. While the Board is always open to evaluating any credible proposal that it believes to be in the best interests of the Company and its shareholders, Gannett’s opportunistic proposal understates the Company’s true value and is not a basis for further discussion. The Board is confident that the execution of our standalone strategic plan will generate shareholder value in excess of Gannett’s proposal.”
In its response, Tribune includes a graphic which charges that Gannett exaggerated the value of its offer in relation to the Chicago company’s actual earnings. The graphic suggests Gannett claimed its $815 million offer amounted to a “multiple” of 5.6 times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), but says the offer actually amounts to 4.3 times Tribune’s recent earnings.
The same Tribune chart shows that Japan’s Nikkei Inc. last year paid 35 times EBITDA to acquire the Financial Times and that the tech billionaire Jeff Bezos paid more than 11 times earnings for the Washington Post in 2013.
One significant holder of Tribune stock, said in an interview that the pressure for a sale to Gannett would continue, unless an alternative buyer willing to pay a similar premium quickly emerges. The stockholder said it was silly to use the Washington Post and Financial Times sales as a basis for comparison, since offers for those papers are far more lucrative than any that has been made for the Tribune papers.
And the company’s most recent sale of a substantial stake went at a discount, not a premium price. In February, Chicago entrepreneur Michael Ferro bought a controlling interest in Tribune Co. for just $44 million, the equivalent of $8.51 a share. That was a 5.5% discount on Tribune’s closing price a day earlier.
The second biggest Tribune Co. shareholder, Oaktree Capital Group, signaled this week that it would like to see a sale of the company go forward. Reuters quoted sources at the Los Angeles-based investment firm as saying that while they were not ready to agree to Gannett’s current offer, they wanted Tribune to engage in discussions with the newspaper giant.
Gannett, which publishes USA Today and more than 100 other papers, was not immediately available for comment.