Denver Post Could Benefit If Its Hedge Fund Owner Buys Gannett

Denver Post Could Benefit If Its Hedge Fund Owner Buys Gannett
Illustration by Patrick Faricy
Update: On February 4, Gannett's board of directors unanimously rejected an unsolicited offer to buy the company from MNG Enterprises Inc. — something that a source speaking to Westword essentially predicted. Continue for our previous coverage.

Earlier this month, MNG Enterprises Inc., a firm under the umbrella of Alden Global Capital, the vampiric hedge fund that owns the Denver Post, made an offer to buy Gannett, the largest newspaper publisher in America as measured by circulation. Gannett's flagship paper is USA Today, and its portfolio includes the Fort Collins-based Coloradoan.

At first blush, this would seem to be bad news for the Post, since the move might result in a transfer of resources away from a publication still recovering from a brutal round of layoffs last year, not to mention an editorial insurrection led by Chuck Plunkett, the man behind a package that attacked Alden in the broadsheet's own pages for its greed and lack of love for journalistic verities.

But a knowledgeable source says an MNG purchase of Gannett, which this insider feels is all but inevitable, could actually be good news for the Post, because Alden's focus would shift from Denver to its shiny new toy. Under that scenario, the Post would be able to operate with considerably less interference from bean counters obsessed with maintaining what's been estimated at a 20 percent profit margin.

Gannett's initial response to the MNG bid was cool and noncommittal. It reads: "Gannett...confirmed that it has received an unsolicited proposal from MNG Enterprises Inc. to acquire Gannett for $12 per share in cash. Gannett’s stock closed at $9.75 on Friday, January 11, 2019. Consistent with its fiduciary duties and in consultation with its financial and legal advisors, the Gannett board of directors will carefully review the proposal received to determine the course of action that it believes is in the best interest of the company and Gannett shareholders. No action needs to be taken by Gannett shareholders at this point."

MNG is the investment subsidiary of Media News Group, which was rechristened Digital First Media; the latter moniker is the equivalent of a brand name rather than a legal entity. The MNG offer came in the form of a letter reproduced below, and our source considers it to be fair, if not so generous that Gannett will simply accept it rather than try to ratchet up the price.

The value of the MNG package is around $1.6 billion — a total arrived at by multiplying the $12 per share offer for Gannett's approximately 113 million shares and adding its current debt of around $300 million. That would translate to about five times Gannett's EBITDA — an acronym that stands for Earnings Before Interest, Taxes, Depreciation and Amortization. The metric essentially means the profit or cash-flow line of a given company's financials.

A 2016 protest against Alden Global Capital. - LINDSEY BARTLETT
A 2016 protest against Alden Global Capital.
Lindsey Bartlett
Of late, newspaper prices have tended to range between four and six times EBITDA, putting the MNG proposal smack-dab in the middle. But Gannett executives may well try to nudge the price up to six times EBITDA or so by asking for $14 or $15 per share, the source feels.

In the meantime, our expert guesses that Gannett is on the lookout for a so-called white knight — likely another private equity firm that would consider paying even more than MNG. But such outfits are in short supply right now, given the poor fiscal performances being turned in by newspapers, which continue to struggle with the transition from print to digital distribution.

The most likely potential player is New Media Investment Group, the holding company for GateHouse Media Inc., which has been the busiest buyer of newspapers over the past three years; last June, it acquired the Pueblo Chieftain. Like Alden, GateHouse has a reputation for slashing costs at the publications it buys, often through staff cuts and layoffs, but like Gannett, it's run by people with a background in newspapers. In contrast, Alden's executives tend to be Wall Streeters who, according to our source, see such papers as mere products rather than torch bearers for a journalistic tradition worth preserving.

Gannett, too, has tried to bolster its share value by way of severe cuts on the editorial side of its newspapers. Indeed, the company instituted company-wide layoffs this month, including three at the Coloradoan. The expert says this round of downsizing has been in the works since late last year and is unrelated to the MNG bid.

One tactic Gannett might try to fend off suitors, the insider hints, would be to either buy Tribune Publishing, the company behind the Chicago Tribune, or to allow Tribune to purchase it. After all, Tribune spent much of 2018 trying to sell itself to another newspaper company, McClatchy Co., before the deal fell apart last month. But given that Tribune's market cap is about $500 million, any private equity firm that could pay $12 per share for Gannett would probably be able and willing to pick up a Gannett-Tribune tandem. As such, combining forces would probably delay but not prevent a sale to MNG, the source says.

Meanwhile, Gannett is in disarray to a significant degree, at least from a leadership standpoint; CEO Robert J. Dickey recently announced his plan to retire this year, and there's no obvious successor waiting in the wings. Our expert feels that makes it even more likely that MNG will end up with Gannett.

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Michael Roberts has written for Westword since October 1990, serving stints as music editor and media columnist. He currently covers everything from breaking news and politics to sports and stories that defy categorization.
Contact: Michael Roberts