Darwinian Applications on Wall Street, or the Survival of the Fattest."
That's what someone in the corporate offices of Speidel Newspapers suggested recently, when president Rollan D. Melton was seeking a title for his final presentation to Wall Street securities analysts.
Speidel, a company based in Reno, Nev., which last year had by far the highest margin of profit among publicly owned newspaper publishing firms, no longer exists as a separate corporation. Literally, it has been swallowed up by one of the "fattest" newspaper companies in America, although Melton says he didn't use the title above on his speech because, "I took offense at that."
As of May 11, the 13 daily and 5 Sunday papers of Speidel in 9 states became part of Gannett Co., of Rochester, N.Y., in a $170 million exchange of stock that was the second-largest newspaper purchase in U.S. history.
It was another giant stride by Gannett - one which made it a truly national publishing company.
By picking up Speidel's papers in California, Colorado, Iowa, Minnesota, Nebtaska, Nevada, Ohio and South Dakota, plus one in New York State, Gannett gained added growing markets and 326,000 of daily circulation outside its previous concentrations in the industrial Northeast, the Southeast and the Pacific Northwest.
By buying the Tucson Citizen last Dec. 28, Gannett entered the Arizona market; by buying two dailies in Springfield, Mo., and one in Muskogee, Okla., in May, Gannett entered two more states; by buying three dailies in Shreveport and Monroe, La., in June, the New York firm found another market for the first time.
With this batch of acquisitions in their pockets, Gannett officers now supervise a chain of 73 daily newspapers - largest in the country - with a circulation exceeding 2.7 million. And top officers say bluntly they have no limit in mind when studying potential future acquisitions.
Addressing the same Wall Street analysts to which Speidel officers gave their "last hurrah" in April, executives of Gannett said the company is aware of some concern about the size of newspaper companies.
But officials said, according to a recounting of the meeting: "Gannett does not believe there is any move either in Congress or more importantly on the part of the general public that would at any time in the foreseeable future get Gannett or others in the newspaper business to a point where they have acquired the last company that could be acquired. Gannett thinks that the pattern of growth through mergers and acquisitions for a number of newspaper companies is likely to continue for many years . . ."
At the U.S. Department of Justice, officials agree with the Gannett assessment, based on the fact that most newspaper revenues come from the single market each paper serves. Given current antitrust laws, they say, there is no evidence of economic concentration that could be challenged - so long as newspaper acquisitions are made in markets where the companies involved do not operate already.
Rep. Morris K. Udall (D-Ariz.), is not so sure. Picking up on Gannett's takeover of his hometown Tucson paper, Udall says "it is increasingly apparent" that competition is disappearing in newspaper publishing.
He cities Section 7 of the Clayton Act, which says no firm may acquire another "where in any line of commerce in any section of the country, in any section of the country, the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly."
Udall and Rep. Bob Kastenmeier (D-Wis.) are seeking hearings this fall before the House Judiciary Committee's monopoly subcommittee, to study alleged concentration of ownership and Udall's suggestion that a commission be established to study newspaper and book publishing, among other industries.
While each specific merger in the newspaper business reflects special circumstances of the companies involved, there are common threads. What follows is a chronology of the Speidel-Gannett merger and what it shows about the growth of chains today.
A particularly intriguing aspect of the Gannett-Speidel combination is the fact that it took place so soon after Speidel itself switched from a private family corporation to a public corporation in late 1972. Less than four years later, it had agreed to a takeover by Gannett, faced with the threat of an unfriendly takeover bid, with Speidel stock undervalued in a stock market where gaints garner attention.
Speidel Newspaper was incorporated in 1958, to formalize the joint ownership at that time of eight papers, acquired by the late Merritt C. Speidel and associates between 1921 and 1958.
Additional papers were acquired in subsequent years, but always, Speidel had the only daily or Sunday papers in town. That gave the firm household subscription penetrations ranging from 60 per cent to 90 per cent. And local advertising accounted for more than 90 per cent of ad revenues.
When Speidel purchased a money-losing paper, such as the Stockton, Calif., Record, it was able 'o turn it around and make a profit in three years.
By 1972, when Speidel management decided to "go public" and sell shares to the public, the company was making annual profits of $5.2 million on revenues of $35.7 million; last year, Speidel earned $10.2 million on revenues of $57 million, for a 24 per cent return on beginning stockholders' equity.
Why did a company obviously capable of generating its own cash sell stock to the public?
According to Kidder, Peabody & Co., an investment firm which handled the public offering, Speidel's selling shareholders hoped that by selling some stock to the public, they could experience an increase in the value time gain increased liquidity - assets of their investments and at the same readly convertible to cash - as well as a possible diversification of their personal investment portfolios.
In addition, because of a set of "rather strange circumstances," Speidel was almost forced by the Securities and Exchange Commission to go public or alter its method of compensating employees.
Speidel had limited ownership to employees or retired employees, with owners signing an agreement providing the firm with an option to buy the shares at any time.
In the fall of 1971, Speidel's board decided to offer stock to more than 25 key employees but a lawyer advised the company that because of the large number of persons involved, supposedly not sophisticated investors, the offering might not fall within SEC guidelines for private offerings.
Speidel, which had a long-range plan of going public anyway, decided to register the offering with the SEC. But the agency said it would not permit such a registration as long as the existing stock purchase agreement was in effect, because of potential seal-dealing abuses.
Late in April 1972, Speidel decided that to meet its obligations to current stockholders, key employees and its own needs, the best course of action would be to sell stock to the public. On Nov. 16, 1972, 746,130 shares were sold at $18 apiece, all from then existing owners.
Exactly two years later, initial discussions were held that led ultimately to Gannett's takeover of Speidel earlier this year; when the deal was consumated, owners of Speidel stock received stock worth more than $30 a share for their investment - eight-at the Dec. 20 closing price (which tenths of a share of Gannett common was $39.375).
Gannett chairman Paul Miller and president Allen H. Neuharth conferred with Speidel president Melton aboard the Queen Mary, off Long Beach, Calif., in November 1974, about the possibility that Gannett would buy 6.8 per cent of Speidel's stock.
According to Gannett officials, they told Speidel they would not make the deal unless Speidel's management approved. They also said they would not seek other blocs of Speidel stock and it would not seek a role in management. Gannett was offered the shares by Thomson Newspapers, as part of a proposed trade of the Newburgh, N.Y., News, then owned by Gannett.
The deal went through and Gannett purchased the shares for $5.5 million late in 1974. Although Gannett did not talk about it, selling the Newburgh paper removed the only potential antitrust roadblock to a future merger of Gannett and Speidel, since Speidel owned the Poughkeepsie Journal, 20 miles from Newburgh - too close for antitrust comfort.
As Gannett readily concedes, "the courtship was on, which was obvious to newspaper executives, stock analysts and others who heard Neuharth in enusing months bragging about Speidel management from New York to New Orleans and other points."
Talks dragged on for the next two years, with no final agreement about how to merge.
But last November, a bombshell shook the newspaper industry and suddenly Speidel was ready to sign. What happened was the surfacing of Newhouse Newspapers, the largest privately owned newspaper firm, in a major bidding with high stakes for Booth Newspapers of Michigan.
Newhouse won with an offer of more than $300 million in cash, defeating industry stalwart Times Mirror Co. of Los Angeles. At small newspaper companies around the country, not anxious to become part of the Newhouse empire, strategy sessions on survival began.
According to stock analyst John Morton, merging with Gannett removed "considerable apprehension that the [Speidel] company's management has been laboring under since Booth Newspapers was swalllowed up by the Newhouse organization."
He said Speidel officers knew that the relatively weak stock market price for their shares compared with the intrinsie value of newspapers - New York Times columnist James Reston said owning newspapers in a single city adds up to a "license to steal" - made Speidel a prime candidate for a takeover bid. Speidel moved rapidly.
On Dec. 17, Speidel's Melton gathered all of his publishers at Reno and told them of the Gannett merger.
In the company's annual report, earlier this year, Melton looked back at the factors in his decision. "In the vernacular, isn't Speidel being swallowed? Certain to disapper?A virtual journalistic Jonah?" he asked.
'No way," he concluded. The merger would bring about greater efficiencies through regional operations in Gannett, he said, and the new Speidel division of Gannett today includes 18 dailies in the Midwest and Far West.
More to the point, he went on, Gannett has a higher dividend rate, a Wall Street experience and following, "and sheer size, being among the greatest defenses in today's business world, which seems increasingly 'takeover' oriented."
In fact, Gannett recently boosted its dividend rate by 20 per cent, to 30 cents a share quarterly, starting with a July 1 payout. But it is apparent that the real reason for Speidel's agreement for a marriage with Gannett was its own relatively weak following in the stock market and the fact it was a potential target for Newhouse.
Speidel is now a division in a larger company and it has lost its individual identity - even though Gannett appears to practice what it preaches in terms of local editorial autonomy throughout the country and Speidel's papers are expected to improve.