Tribune Publishing rejects Gannett’s $815-million offer to buy the company

Tribune Publishing’s board voted unanimously to reject Gannett’s $815-million unsolicited offer to buy the owner of the Los Angeles Times, Chicago Tribune and other major newspapers.

In a letter sent to Gannett on Wednesday, Tribune Publishing said after “thorough consideration” and the assistance of legal and financial advisors, it determined the proposal was too low and not in the best interest of shareholders.

“The board and I remain confident in our ability to generate shareholder value in excess of Gannett’s opportunistic proposal through a focused execution of our strategy,” Tribune Publishing CEO Justin Dearborn said during an earnings call Wednesday. “The board has evaluated the unsolicited offer in this context and concluded it is not a basis for further discussion.”

Tribune announced it was spurning Gannett shortly after releasing its first-quarter earnings but before a call with investors in which executives detailed plans to separate the company into three segments: the traditional publishing business, a digital content business and the Los Angeles Times.

Selling to Gannett was not in those plans.

On April 12, Gannett made an offer to buy Tribune Publishing for $12.25 per share, an all-cash deal valued at $815 million, including the assumption of $390 million in debt. The offer represented a 63% premium over the stock price.

Since then, Gannett has been ramping up the pressure on Tribune Publishing to “substantively engage” in discussions. Gannett said Tribune Publishing was deliberately dragging its feet, while Tribune Publishing Chairman Michael Ferro accused Gannett of “trying to steal the company.”

Gannett wanted a response to its offer before Tribune Publishing’s annual meeting June 2, when Ferro appointees would represent a majority of a newly elected board, sources said. On Monday, Gannett filed with the Securities and Exchange Commission an intent to seek “withhold” votes from stockholders in connection with the board election.

The Tribune board’s rejection letter Wednesday sent an equally clear message, one that was not well received by Gannett.

“This announcement reaffirms our concern from the outset that Tribune’s board never intended to engage with us, necessitating that we make our proposal public,” Gannett Chairman John Jeffry Louis said in a news release. “It is unfortunate that Tribune’s board would deny their shareholders this compelling, immediate and certain cash value by rejecting our offer without making a counterproposal or otherwise negotiating or providing any constructive feedback.”

Louis said Gannett will continue its campaign to get Tribune Publishing shareholders to withhold support for board directors.

Tribune Publishing reported a first-quarter net loss of almost $6.5 million, or 22 cents a share, compared with net earnings of $2.5 million, or 10 cents a share, in the year-ago period. Items affecting the quarter included a pretax $8-million charge related to an employee buyout program and $14 million in restructuring and transaction costs.

On a call with investors, Dearborn said Tribune Publishing’s plan would substantially increase revenue and valuation.

Among the initiatives is an expansion of the L.A. Times, with the creation of seven international news bureaus in Hong Kong, Seoul, Moscow and other “entertainment” markets, headed up by Davan Maharaj, publisher and editor-in-chief of the L.A. Times.

“Tribune Publishing is in the early stages of a compelling transformation, with a well-defined strategic plan to drive increasing monetization of our important brands, capitalize on the global potential of the L.A. Times and significantly accelerate our conversion of content to revenue through an enhanced digital strategy,” Dearborn said in a statement Wednesday.

The company also announced performance-based pay increases for editorial staffers across Tribune Publishing, beginning in the third quarter.

Dearborn also talked about an artificial intelligence system to build audience profiles, feed suggested content and keep viewers on Tribune Publishing websites longer. He said the system is expected to roll out across all Tribune sites this year and could generate “hundreds of millions of dollars” in incremental advertising revenue.

Advertising revenue was down 4.4% in the first quarter to $215 million. Without the San Diego Union-Tribune, which was acquired in May 2015, ad revenue was down 12.4%.

The company reported adjusted net income of $7 million, or 23 cents per share. First-quarter revenue was flat at $398.2 million.

Excluding the San Diego Union-Tribune, Tribune Publishing’s first-quarter revenue fell more than 7% to $368.7 million.

Ferro became Tribune Publishing’s largest shareholder in early February, when his investment firm, Merrick Media, bought a 16.6% stake in a $44.4-million deal.

Oaktree Capital Management, a Los Angeles-based investment firm, is the second-largest shareholder at 14.8%.

rchannick@tribpub.com

Channick writes for the Chicago Tribune.