Gannett Co. Inc., the Rosslyn-based communications giant that publishes 86 daily newspapers including USA Today, agreed to acquire The Evening News Association yesterday for $717 million in cash, giving Gannett control of Washington's WDVM-TV (Channel 9) and The Detroit News.
Gannett won the bidding war for the closely held company by offering ENA's 330 shareholders $1,583 a share for stock that was selling only eight months ago for $250 a share. The dramatic increase in the value of ENA shares reflects the premium prices that bidders have been willing to pay in recent months to buy media companies.
The only other serious bidder for ENA was Washington Redskins owner Jack Kent Cooke, sources in Detroit and on Wall Street said.
ENA became the target of a $453 million hostile takeover bid from television producers Norman Lear and Jerry Perenchio last month. The producers, who later increased their offer to $566.3 million, were not available for comment yesterday on whether they would attempt to outbid Gannett.
It would be difficult for Lear and Perenchio to derail the Gannett-ENA combination, however, since ENA has granted Gannett special options, known as "lock-up agreements," to buy WDVM and The Detroit News. These "lock-ups" are designed to discourage other bidders from making competing offers, because Gannett would have the first right to purchase those assets.
"We are extremely pleased that Peter Clark and his associates invited Gannett to make an offer that will bring our two companies together," said Gannett's chairman, Allen H. Neuharth. "They have developed an outstanding media organization and we will dedicate our resources to building on that base. We are especially aware of the proud tradition of public service by The Detroit News for 112 years, and we look forward to continuing and enhancing that."
Gannett's purchase of ENA could end the fierce newspaper battle in Detroit between The Detroit News and Knight-Ridder's Detroit Free Press. The Detroit News sells 665,000 newspapers daily, about 20,000 more than the Free Press. Both newspapers have been losing millions of dollars in the last several years as they cut advertising and circulation rates while increasing expenditures on news operations.
Gannett could agree to a cease-fire in the newspaper battle by joining with Knight Ridder in a joint operating agreement. Such an arrangement, allowed under a law granting special antitrust exemption to struggling newspapers, would improve the profitability of both newspapers by allowing them to combine their business operations, while maintaining separate editorial staffs. Knight Ridder officials have indicated they are interested in a joint operating agreement, which would require federal approval.
Gannett's victory in Detroit marks the second time this year the company has been the winning suitor for a closely held media company that had been the target of a hostile takeover bid. On Jan. 31, Gannett agreed to acquire the newspaper operations of The Des Moines Register and Tribune Co. for $200 million, after that company received an unsolicited $112 million takeover offer from Dow Jones & Co., publisher of The Wall Street Journal.
In addition to WDVM and The Detroit News, Gannett is acquiring ENA assets that include daily newspapers in Palm Springs and Indio, Calif., and in Vineland and Millville, N.J.; television stations in Austin, Tex., Oklahoma City, Mobile, Ala., and Tucson; and radio stations in Detroit.
Federal Communications Commission cross-ownership regulations, which prohibit ownership of a daily newspaper and either radio or television stations in the same city, will force Gannett to sell properties in Tucson, Detroit and Oklahoma City. Gannett apparently does not believe the FCC rules would prevent it from owning WDVM, a CBS affiliate in Washington, even though Rosslyn is the headquarters for its national newspaper, USA Today.
ENA has owned WDVM since 1978, when it swapped its Detroit station with The Washington Post Co. That deal was made in anticipation of an FCC policy that could have prevented The Washington Post Co. from continuing to own WDVM.
ENA Chairman Peter Clark, a great-grandson of Detroit News founder James E. Scripps, tried to prevent the company's sale, but the pressure became too great. Clark was unable to satisfy shareholders who were afraid that they might lose their chance to sell their shares for the high price that media properties are getting in today's hot media merger market.
ENA had revenue of $310 million and net income of $13 million in 1984. Detailed financial statements are not publicly available because the company is privately held. According to an employe who was fired for leaking confidential financial information to Lear and Perenchio, The Detroit News lost $8.5 million last year and was budgeted to lose $11.5 million in 1985. The company's broadcast division was expected to generate profits of $32 million this year.
One ENA shareholder, Peter Booth, issued a statement last night indicating disappointment with the price of Gannett's takeover bid.
"We believe Gannett has negotiated a better deal than expected," Booth said. "The prospect of a competing bid remains open. It should be stressed that the Gannett offer was negotiated privately, and we are not aware of any efforts by the ENA board to negotiate with Lear and Perenchio during their negotiation process. We are reviewing the Gannett price and have made no decision to tender our shares at this time."
Gannett owns 86 daily papers, 38 non-daily papers and USA Weekend; six television and 14 radio stations, and the largest outdoor advertising firm in North America. The ENA deal requires FCC approval.