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Gannett's pursuit of Tribune may not be over yet, analysts say


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Gannett's pursuit of Tribune may not be over yet, analysts say

Despite rejecting an $815 million acquisition offer from outright, might yetbe pressured to reopen negotiations for a sale, analysts told SNL Kagan.

The newspaper companies recently engaged in a public after Gannett decidedto take its unsolicited offer directly to Tribune shareholders, claiming that thecompany's board seemed disinclined to take its proposal seriously. In an effortto pressure Tribune to negotiate, Gannett on May 2 announced its to solicit shareholders to withholdvotes for Tribune's directors at the company's upcoming annual meeting. After earliersaying its board was reviewing Gannett's proposal, Tribune on May 4 sent a letterto Gannett Chairman John Jeffry Louis III and company CEO Robert Dickey rejectingthe $12.25-per-share offer as too low. Gannett's executives quickly , asking Tribune to explain itsvaluation concerns and reiterating the suggestion that Tribune executives neverintended to negotiate.

Gannett executives have proven acquisitive since the company'sspin off into a stand-alonepublishing business. The bid for Tribune comes on the heels of Gannett's closingof the about $300 million acquisition of Journal Media Group last month.

"We've been really upfront about we're focused oncreating a USA Today network with thegoal being the No. 1 digital news network in the country," said Gannett CEOBob Dickey during the company's April 27 earnings call. "As we look at thatstrategy … we think consolidation now is really centered around a number of keymarkets."

However, the tone of the public negotiations with Tribune issomewhat unusual, analysts said.

"It is unusual in terms of newspapers, which is pretty mucha brotherhood, to see hostility," said Ken Doctor, a media analyst with OutsellInc., in an interview. "You can call it a hostile offer. You can call it abear hug as it's been called in the M&A trade."

In taking its proposal public, Gannett executives seemto have anticipated that Tribune Chairman Michael Ferro Jr. would be against theoffer, analysts said. Ferro joinedthe board as a nonexecutive in February 2016 and stands to make a hefty return ifthe company is sold. But the Poynter Institute's media analyst Rick Edmonds saidFerro aims to have a helping hand in running Tribune's properties and may be tryingto flush out a plan to generate more value for the company.

"In this climate for newspapers, that's fairly hard to bringoff," Edmonds said in an interview.

Tribune faced a stumbling block recently when its bid toacquire Freedom Communications Inc.and secure a foothold in the Southern California newspaper market was by the U.S. Department ofJustice. The company on May 4 reported a first-quarter net loss of $6.5 million,compared to net income of $2.5 million in the comparable 2015 quarter. Advertisingsaw a 4.4% year-over-year decline to $214.7 million in the period. The results werein line with company expectations, however, and showed some momentum in digitaland circulation revenue. Executives said Tribune is in the "very early stagesof executing our clear plan to transform Tribune Publishing."

Gannett's offer apparently caught the attention of Oaktree CapitalGroup, the second largest shareholder in Tribune Publishing. While unnamed sourcestold Reutersthat Oaktree did not support the price offered, the shareholder company is reportedlyin favor of Tribune's board exploring a potential sale of the company to Gannettor other interested parties.

Gannett's rejected offer amounted to a 63% premium on Tribune'sApril 22 closing stock price of $7.52. Tribune's shares shot up to trade at near$12 apiece following news of Gannett's unsolicited offer but the stock has drifteddownward in the weeks since, opening at $10.91 a share on May 5.

"The Board is confident that the execution of our stand-alonestrategic plan will generate shareholder value in excess of Gannett's proposal,"Tribune CEO Justin Dearborn said in a response letter to Gannett's board.

Even so, Edmonds and Doctor think Gannett ultimately will succeedin its acquisition effort, with Tribune driven back to negotiations by activistinvestors and the appeal of a higher-than-expected shareholder return. But Edmondsalso noted that a number of parties may be interested in Tribune's Los Angeles Times, such as philanthropistEli Broad, who for years expressedinterest in acquiringthe metropolitan publication.