Gannett Co. said Monday that its board has unanimously rejected an unsolicited proposal to be acquired by media company MNG Enterprises Inc., also known as Digital First Media, saying the proposal undervalues the company and the board doesn’t believe the offer is credible.
MNG on Jan. 14 offered to buy Gannett for $12 a share in cash, which at the time was a 23 percent premium above its most recent closing price of $9.75 a share. Gannett shares rose as high as $11.99 a share on Jan. 14, but closed Friday at $11.22. The stock fell 3 percent Monday to $10.89 in afternoon trading.
“After careful review and consideration, conducted in consultation with its financial and legal advisers, the Gannett board concluded that MNG’s unsolicited proposal undervalues Gannett and is not in the best interests of Gannett and its shareholders,” the company said in statement. “In addition, Gannett does not believe MNG’s proposal is credible.”
Gannett said that in response to the Jan. 14 offer it sent a letter to MNG offering to arrange a meeting between representatives of both companies, including two of Gannett’s independent directors. In the letter, Gannett posed questions that included how MNG would finance the deal, what MNG’s view on antitrust concerns was, and what its approach would be to newsroom staffing and pension obligations. Gannett said MNG’s response was to require a non-disclosure agreement, or NDA.
“An NDA is not a prerequisite for MNG to explain how it intends to finance and close the transaction MNG itself proposed,’’ Gannett said in its Monday press release announcing the rejection of the hostile bid. “Without such basic information, neither Gannett nor any other company in Gannett’s position would disclose sensitive, confidential information to MNG. While Gannett invited MNG to provide written responses at a level of detail that would not have required MNG to disclose confidential information, MNG still has not provided any more information about how it would execute on its proposal.”
“In light of this, Gannett now questions MNG’s motives and can only conclude that the proposed NDA is a distraction designed to mask MNG’s inability to finance and complete the proposed transaction,” the company said. “Indeed, given MNG’s refusal to provide even the most basic answers to Gannett’s questions, it appears that MNG does not have a realistic plan to acquire Gannett.”
Gannett declined to comment beyond the press release.
In response to Gannett’s letter, MNG Enterprises said in a statement, “Gannett’s board today sent shareholders a clear message: that it intends to block immediate and certain value creation opportunities in favor of a speculative future engineered by the team that already has destroyed over 40 percent of the company’s value.”
MNG Enterprises said it is better suited to oversee the media company. “Gannett is presiding over a declining core business, decreasing cash flow and significant leverage because it overpaid for digital assets,” MNG said. “Gannett’s deep structural problems are better fixed by experienced operators such as MNG, away from pressures of the public markets.”
Wall Street analysts had predicted that Gannett would decline the offer saying that it was too low and that Digital First may have been betting on a level of cost cutting in Gannett that is unrealistic. At the time, Huber Research analysts Douglas Arthur and Craig Huber said any offer for Gannett should be at least $14 a share.
Digital First, majority owned by New York hedge fund Alden Global Capital, operates daily and weekly publications including the Denver Post and the Boston Herald. Gannett’s media properties include USA TODAY, The Arizona Republic and The Detroit Free Press. MNG holds a 7.5 percent ownership stake in Gannett.
The MNG offer has led to a flurry of speculation in the media and in journalism journals that the overture may set off a wave of consolidation in the industry, which has been dealing with a years-long shift to digital advertising from print publications.
MNG said it has retained Moelis & Co. as its financial adviser and that it is prepared to talk to Gannett about how it plans to fund its proposal. MNG also said it would “consider its options in the coming days,” including the possibility of nominating candidates to Gannett’s board.
Some media reports have said there are doubts or concerns about Alden’s ability to finance a deal and others have suggested that Alden’s main objective is to boost Gannett’s stock price or even to sell Digital First.
“If I were a Gannett board member, I would sort of scratch my head and say, ‘Well, what have you been doing up to now and where are you going to get the money?’ So from the Gannett board’s perspective, I see this as a logical response,” said Morton Pierce, a mergers and acquisitions lawyer with the law firm of White & Case in New York City.
Gannett’s response in its letter to MNG was “stronger’’ than the typical one sent by targets of a hostile takeover, he said. “This was more pointed in that they pointed out these guys hadn’t answered their questions and they questioned whether or not they could finance a bid,” Pierce said.
“(MNG) could go away—they could come back and offer more,” Pierce said. “They could try to mount a bid with a proxy contest to try to gain control of the board. There are options available if they want to pursue that.”
If MNG Enterprises “is really serious,” the company will have to have a slate of board of directors candidates submitted to Gannett by Feb. 7, says Michael Kupinski, director of research at Noble Capital Markets in Boca Raton, Florida.
“Then they are going to have to get out there and explain their case – why investors should vote for their slate of directors instead of the company’s,” he said. “That is an expensive process,” he said.
Kupinski likens the situation to a tennis match. “They are kind of lobbing back and forth. The way I score this so far, it’s 30-love. Gannett, basically, has not only said, ‘Hey, we’re going to decline your offer,’ but also is saying, ‘It’s up to you to show us you are even capable of financing a deal.’ Score two points for Gannett,” he said. “The ball is really in (MNG Enterprises’) court.”
The match is far from over, Kupinski said, but added, “I would say Gannett is closer to winning than the other firm is. And if we don’t get a slate of directors (from MNG Enterprises), they haven’t scored yet.”
Some have speculated that Gannett could align with Chicago Tribune and Baltimore Sun owner Tribune Publishing after its own efforts to buy the company previously failed. Adding to the speculation that Tribune Publishing may be interested in a deal with Gannett, Tribune Publishing announced Jan. 17 a shakeup of its executive ranks, including the departure of Justin Dearborn, who had served as Chairman and CEO. The company named Timothy P. Knight as CEO and David Dreier as chairman. In a statement, Knight said the company believes there “are attractive consolidation opportunities within the media industry that will enable us to accelerate our strategy.” Tribune declined to comment for this story.
For its part, Gannett hasn’t ruled out growth through “selective acquisitions.”
“Our vision and pursuit of our digital transformation, combined with our USA TODAY Network strategy, enables us to serve more directly and efficiently the persistent demand of our audiences and customers to engage with their communities,” J. Jeffry Louis, chairman of the Gannett board of directors, said in Monday’s announcement. “We believe that our future — and that of the industry — turns on thoughtful investments in journalism and marketing solutions, so we can deliver engagement when, where and how our audiences and customers demand it. Delivering on this purpose will deliver value to our shareholders and benefit the communities we serve.”
MNG’s offer and the potential fallout has reverberated in newsrooms and with industry observers across the country. Journalists and industry insiders familiar with MNG/Digital First owner Alden regard its methods of acquisition and management of distressed newspaper properties as a particularly ominous force in the industry in which staffs are decimated and properties sold off for investment elsewhere at the expense of a newspaper’s prospects for long-term survival.
In response to previous inquiries by USA TODAY, MNG has pointed to its “successful track record” enabling it “to run newspapers profitably and sustainably so that they can continue to serve their local communities.”
Adding to the concerns of journalists, a litany of newsrooms have recently either experienced or announced layoffs, buyouts and early retirement offers, including legacy media organizations Gannett and McClatchy and younger, digital media counterparts such as Vice Media, HuffPost and BuzzFeed.