Persistenceoften pays off in the newspaper industry. But it can also carry a high cost.
Recentreports haveindicated Gannett CoInc. is inching closer to reaching a deal to acquire , formerly TribunePublishing. Gannett is expected to pay between $18.50 per share and $19 pershare.
Thatprice would represent a significant increase from the $12.25-per-share offerthat Gannett first announced in April. Prior to that offer, tronc's stockhad been trading around $7.50 per share.
OnOct. 4, as rumors continued to swirl about a pending deal, shares in troncclosed at $17.39.
"Theoriginal bid was a very substantial premium over the trading price of the stockand I thought it was mostly negotiation rhetoric when [tronc Chairman Michael]Ferro and others said it was a lowball or ridiculously low offer," PoynterInstitute media analyst Rick Edmonds said in an interview.
LarryGrimes, president of mergers and acquisitions firm W.B. Grimes & Co.,agreed.
"Ithought it was a pretty sweet deal when they made their first offer, but Idoubt they expected it was going to be accepted," he said.
ButGrimes also noted there are reasons Gannett may be willing to pay a higherprice for tronc than he initially expected.
"[Gannettis] buying into some major, major markets, and Tribune has the dominant mediaproperties in those markets, so that should carry a premium," Grimes said.
Thejewels in tronc's crown, so to speak, are the Los Angeles Times, which has an average circulation of 790,000 andaverage monthly unique visitors of 36.5 million, and the Chicago Tribune, which has an average circulation of 853,000 andaverage monthly unique visitors of 19.5 million.
"I'mvery interested in what Gannett might do with those two papers," Edmondssaid, noting that Gannett uses its USA Today Network to provide national andinternational news copy to its network of papers. Both the L.A. Times and the ChicagoTribune have strong news desks that specialize in certain areas, such asentertainment or sports. Edmonds wondered if Gannett would keep those newsdesks in L.A. and Chicago or cut back on staffing to save on costs.
"Hypothetically,if the L.A. Times does a very goodjob covering the entertainment industry or sports — which they do — you wouldpresumably want to keep that talent but make it part of what goes to all of thepapers," Edmonds said.
Onthe other hand, Edmonds also believes that Gannett will be looking to achieve"considerable savings" if it does succeed in buying tronc.
Grimesalso said that Gannett will likely slash costs wherever it can if anacquisition occurs.
"I'mguessing there are going to be some significant cuts and operating synergiesthat fall into place if they buy tronc," Grimes said, adding that hebelieves Gannett has "two sets of numbers — the current operating costs[at tronc] and what they think the operating costs will be under them. Andthose could be significantly different numbers."
BothGrimes and Edmonds noted that Gannett needs to do more than slash costs inorder to truly grow the business.
"Whatconcerns me is they seem to be following a strategy similar to what has donewhere they are buying revenue and they are buying cash flow and they are notrelying on their existing units to grow. I believe that's a strategy thatcatches up to them at some point down the road," Grimes said.
Foryears, GateHouse hadbeen on an acquisitivestreak but underwent restructuring in 2013 following a voluntary Chapter 11bankruptcy filing. It is now owned by New Media Investment Group Inc.
Gannettmost recently reported second-quarter operating revenues of $748.8million, an increase of $21.7 million or 3.0% from the year-ago period. But thecompany acknowledged the increase was primarily attributable to its Aprilacquisition ofJournal Media Group Inc.
Excludingthe $92.6 million in revenues generated by Journal Media Group, ad revenues atGannett's legacy business were down around 10%.
BeyondJournal Media, Gannett also acquired the digital marketing services companyReachLocal in August and bought substantially all of the assets of North JerseyMedia Group Inc. in July.
"Weare still very bullish on the fact that our local market expansion makessense," Gannett CEO Bob Dickey said during a July earnings , adding thatthe company has a "very robust pipeline" of acquisitions.
"Andwe still see some further opportunities out there," Dickey said.
BetweenGannett's balance sheet and its access to capital, Grimes said the company hasboth money to spend and an opportunity to grow its USA Today Network to attractmore nationaladvertisers. But he would like to see Gannett pursue smallertuck-in acquisitions while devoting more resources to encouraging organicgrowth.
"Iwould have preferred that they spent a good chunk of that money growing theirexisting franchises and maybe making a goodly number of strategic acquisitions.But they're following a different tack," Grimes said.
Thusfar, it remains unclear how soon a deal with tronc might be announced. While"confidential sources" told Politicoon Oct. 2 a deal was imminent, "people familiar with the situation"told BloombergNews on Oct. 4 that a final agreement has not been reached and negotiationscould still fall apart.
Representativesfrom Gannett and tronc did not immediately respond to requests for comment.