Chicago newspaper publisher Tronc, formerly known as Tribune Publishing, is caught up in a maelstrom of dealmaking talk, but there’s little reason to believe the whole company will be sold anytime soon.
Two significant transactions affecting the company are pending—a sale of the Los Angeles Times and a major Tronc stake—and that’s enough to give any certainty-seeking buyers pause. There are also reasons to question whether any of the suitors mentioned in media reports would, or could, follow through on an acquisition that is getting pricier.
While the newspaper industry, with its declining readership and profitability, remains ripe for consolidation, Tronc may just as likely continue to shrink as be purchased. The only thing that seems clear is that the country’s second-largest newspaper chain by 2017 revenue will still be buffeted by a newsprint sea change that threatens papers industrywide and increasingly pits management against workers.
“The press has had Tronc sold about 20 times in the past three years,” says Huber Research media analyst Doug Arthur, who’s skeptical of any deals getting done as long as the sale of the Los Angeles Times is still pending.
“The first order of business for Tronc is to sell the L.A. Times, which has not happened yet,” notes Arthur, who has an “underweight,” or sell, rating on the stock. “So I don’t know how you evaluate the company.”
In addition to the L.A. Times, its largest newspaper, Tronc owns the Chicago Tribune, Baltimore Sun, Hartford Courant and Fort Lauderdale Sun-Sentinel newspapers, among others.
With journalists at the Tribune on the verge of unionizing—following in the footsteps of L.A. Times workers—and former Chairman Michael Ferro exiting recently amid allegations of sexual misconduct, plus the slow-moving effort to close on the L.A. Times sale, Tronc CEO Justin Dearborn has his hands full. Dearborn, appointed in 2016 after Ferro commandeered the company’s board, also became chairman this month after his boss’s departure.
The company previously said the sale of the L.A. Times would close in the first quarter or early in the second quarter. A spokesman for the company, Dennis Culloton, says it will close “soon.” The rebel buyer, Patrick Soon-Shiong, who last year was ousted from Tronc’s board, may be angling for a lower price, according to one report.
In another significant transaction, Ferro and his Merrick Media investment firm are in the process of selling a 25 percent Tronc ownership stake, the largest outstanding, to McCormick Media, run by Sargent McCormick, a little-known distant relative of famed former Chicago Tribune publisher Robert McCormick who lacks big media experience. It remains to be seen what influence he may have in the wake of Ferro’s outsize former role at the company.
Meanwhile, news reports abound about a possible sale of the entire company to New York private-equity firm Apollo Global Management, larger publishing rival Gannett or Japanese conglomerate Softbank. While the potential suitors are plausible, there are reasons to doubt each, and the companies are not commenting.
See a larger version of this timeline.
With respect to Apollo, Noble Capital Markets media analyst Michael Kupinski thinks there may be confusion over Apollo CEO Leon Black’s interest in buying Ferro’s stake, as opposed to the whole company. While Kupinski declines to comment on the reports of a possible Tronc sale, he threw cold water on the idea that Black is in the running.
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McLean, Va.-based Gannett had been interested in buying Tronc in 2016, but after turning a hostile offer into an agreement, the deal fell through when Gannett couldn’t muster funding for the nearly $1 billion acquisition at about $18.50 a share. With Tronc stock now pushing $20, it’s hard to believe Gannett would have an appetite at a higher price, especially with its own stock price languishing. Also, is Tronc more, or less, attractive to Gannett without the L.A. Times?
All would-be buyers are likely to look askance at the rising stock price, fueled by Soon-Shiong’s rich $500 million offer for the L.A. paper and Ferro’s agreement to sell his stake at $23 a share. The stock hasn’t touched $23 since Ferro invested in the company for $8.50 a share in February 2016, and it only recently topped $20 briefly.
Softbank might be interested, given its newly acquired New York-based Fortress Investment Group, which owns a stake in newspaper company Gatehouse Media. Still, given the Trump White House’s protectionist policies, it might be an uphill battle to sell control of major U.S. newspapers to a foreign parent company, even if Japan is an ally.
Dearborn executed on Tronc’s own acquisition plan, buying the New York Daily News, New York-based Spanfeller Media Group and a majority stake in online outlet BestReviews. And $500 million from an L.A. Times sale could back the effort, but the company has said it may use the money to pay debt. In any case, Dearborn has done little to follow through on a digital transformation of the company, failing to stem a five-year revenue decline and posting meager 2017 profit of $5.5 million. Those aren’t the kind of results likely to turn suitors’ heads.