The combination of Pittsford, New York-based GateHouse, the operating subsidiary of New Media Investment Group, and McLean, Virginia-based Gannett would create a nationwide media company with more than 260 daily news operations – potentially the largest online audience of any American news provider.
However, GateHouse and Gannett shares have fallen since the companies announced New Media’s acquisition of Gannett, the larger of the two companies and owner of USA TODAY and more than 100 other daily publications and digital marketing services such as ReachLocal.
As of Tuesday, New Media shares had fallen about 26% from their price on Aug. 2, the last full trading day before the deal was announced. Gannett shares had fallen about 8.5% in the same period. On Wednesday, U.S. markets fell sharply on concerns about the broader economy. Near the close of trading, Gannett shares were down, but New Media stock was up more than 2% to $8.11.
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Prior to Wednesday’s session, the lower stock price had reduced the value of the cash-and-stock deal from about $1.4 billion to about $1.2 billion. That has reportedly soured hedge fund investor Leon Cooperman, who upped his stake in New Media after the deal’s announcement to 9.9%.
The New York Post reported late Monday, citing unnamed sources, that Cooperman may decline to support the deal unless New Media’s stock remains above $8.
New Media and Gannett, both of which have focused on building digital subscribers, say the combined company would allow them to shed overlapping costs, gain national scale to attract advertisers and create new digital marketing services opportunities as they continue their “digital transformation.”
They sought to bolster their case for the merger in new investor materials filed Tuesday with the Securities and Exchange Commission.
The companies had estimated the merger could yield savings of $275 million to $300 million in annual costs within 24 months.
The new investor materials include additional guidance on how those savings could be attained. Newspaper operations, according to the filing, could save more than $115 million with “rationalization of manufacturing & distribution” and “centralization of management structure and consumer marketing.”
The combined company could save more than $70 million in corporate and procurement changes with lower prices for bulk purchasing, centralization of finance departments, and the “elimination of duplicative public company functions and costs.” the filing says.
Other actions that would yield more than $50 million in savings would come from digital services, events and centralization of sales. “Centralization and expansion of technology systems” could save more than $40 million, the filing says.
Cost synergies, along with “a growing digital business” and the end of Fortress Investment Group’s operation of New Media, could deliver annual “illustrative” earnings before interest, taxes, depreciation and amortization of $860 million – bettering the current companies’ combined estimated $515 million 2019 figure, according to the filing.
An aggressive debt payment schedule of a five-year secured loan of nearly $1.8 billion from private equity firm Apollo Global Management would lower the leverage on the combined company, according to the filing’s schedule. Management views this as a “bridge loan” and expects to refinance it in two years, the filing says.
Neither Gannett nor New Media offered comment on the filing. The companies’ boards each support the deal, but it requires approval by shareholders.
Particularly “interesting” to Rick Edmonds, a media business analyst at The Poynter Institute, is the breakdown of cost synergies. “While news operations is the largest category, the majority comes from other things” he said.
Although newsroom cuts may not be as large as many fear, questions remain. “I am also curious how the transaction terms would be affected by the 25% drop in New Media shares,” Edmonds said. “Does (Gannett) just accept less? Or does (New Media) supply more shares? Or do they meet in the middle? The phrasing about ‘subject to conditions at closing’ is vague about that.”
The companies paint a rosy picture with this prospectus, says Ken Doctor, media analyst at Newsonomics. But it is not too rosy, as “you don’t see the word growth in there,” he said.
“The question is whether it sells the story or not,” Doctor said. “We know there is significant doubt about the deal working.”
However, amid the backdrop of an industry cutting costs — and eschewing investments — to satisfy individual shareholders, those same investors, Doctor said, may say, “‘Well it may not be a great deal, but is it the best available one out there.’ And I think they may well come to the conclusion that it is.”
MNG Enterprises, which has acquired a 9.4% stake in New Media, could oppose the merger or propose alternatives, according to a public filing last Friday. Controlled by hedge fund Alden Global Capital, MNG recently failed in a hostile takeover attempt of Gannett.
As both sides work to close the deal, union representatives and industry watchers said that GateHouse cut jobs at several publications this week including the Oklahoman, the Palm Beach Post and the Cape Cod Times. A spokesman for GateHouse declined to comment.
Gary White, a general assignment reporter at The Ledger, a GateHouse-owned newspaper in Lakeland, Florida. said he received a series of emails Tuesday from union representatives at publications that were affected.
“I think people were kind of surprised that this happened considering the pending deal, and because there were layoffs in May,’’ White said.
Still, it’s likely this latest round of job cuts has more to do with the disappointing financial performance of GateHouse’s owner, New Media. in the second quarter than to the pending deal with Gannett, saysEdmonds, Poynter’s media business analyst.
“As revenues fall, newspaper companies … do trim expenses accordingly,” he says, adding that cuts tend to occur at specific papers that miss their budget targets.
Contributing: Charisse Jones
Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider.
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