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As Gannett merger nears completion, union claims ‘journalism will suffer’ under deal

Publishers GateHouse and Gannett say their merger will benefit journalism. The journalists’ union disagrees.

Copies of USA Today, owned by Gannett, and the Palm Beach Post, owned by GateHouse Media, on sale at a newsstand in Palm Beach, Fla., in August. GateHouse Media's merger with Gannett will create the largest local news publishing organization in the United States. (Joe Raedle/Getty Images)

The country’s leading newspaper union issued a scathing analysis of the proposed Gannett-GateHouse merger Friday, saying the deal would drive down wages and employment for journalists at the 250 daily newspapers and hundreds of weekly and community papers the combined companies would own, and would overcompensate GateHouse’s private equity backers.

“This merger will hurt the communities these media organizations serve,” Bernie Lunzer, president of the NewsGuild-CWA, which represents more than 20,000 journalists, said in a statement. “To fund the merger, local papers will likely disappear, jobs will be slashed, and journalism will suffer.”

The 11-page analysis produced by the union argues that the deal GateHouse and Gannett reached will unnecessarily lead to more cuts to the benefit of Wall Street investors. The deal calls for GateHouse parent New Media Investment Group to purchase McLean-based Gannett for $12.06 in cash and stock per share. Shareholders from both firms are scheduled to vote on the deal next week.

Is bigger better? Gannett merger will test whether local news can be saved.

The union suggests in its report that private equity giants Fortress Investment Group and Apollo Global Management are getting the best of the deal. Fortress backs New Media Investment Group, and is slated to come away with 4.5 million shares in the new company. Apollo is issuing a $1.8 billion loan to finance the deal, at an expensive 11.5 percent interest rate, and could gain control of the board if the company does not meet financial expectations, the union determined.

Spokesmen for Fortress and Apollo did not immediately return requests for comment Friday morning.

Spokesmen for New Media and Gannett declined to comment, but executives at the two companies — America’s largest two newspaper publishers — have said the $1.4 billion deal would save $300 million annually in overhead costs, in areas such as marketing, human resources and accounting. It would create the largest newspaper publisher in America.

When the companies announced the deal in August, New Media Chairman Michael Reed told shareholders that, should the deal be approved, it will “not only preserve but actually enhance the journalism in our local markets.” Gannett Chairman Jeff Louis said that “together, we will deliver on our shared commitment to journalistic excellence.”

Read the report prepared by the NewsGuild examining the impact of Gannett's merger with GateHouse

The union’s report puts its views in sharp contrast with those comments, saying New Media has historically cut jobs held by reporters, editors and photographers after making acquisitions and that the company prioritizes sending dividends to shareholders over investing in journalism.

Lunzer said in the union’s statement that it was hard to see the agreement as “anything more than a callous piece of financialization meant to create short-term profit at the expense of the newspapers.”

The newspaper industry has been in steep financial decline for more than a decade and both companies have enacted deep cuts to newsrooms in recent years, as have nearly all other publishers. Analysts say the companies could achieve substantial savings in the deal, but the companies have not outlined where the newly formed company will identify $300 million in annual cuts, something they have promised to find in the first 24 months.

Fearing more newsroom cuts, staff members at one of Gannett’s largest publications, the Arizona Republic, voted to unionize in October in advance of the deal, despite alleged intimidation from management.

Like many newspapers in America, Arizona Republic staffers say they have already suffered dramatic cuts, from roughly 425 journalists in 2007 to about 130 today. The newspaper’s four community bureaus have closed, and a single reporter covers both the city of Phoenix and Maricopa County governments.

Newsroom staff at Arizona Republic, a Gannett paper, moves to unionize ahead of GateHouse deal

Gannett recently fended off a hostile takeover attempt by a more cost-focused chain, MediaNews Group (MNG). MediaNews Group, backed by hedge fund Alden Global Capital, is now a New Media shareholder and supports the deal, according to a securities filing MNG made last week.

Gannett stock opened trading Friday at $10.44 a share after reaching a 2019 high of $11.04 the day the merger was announced. After the deal was announced, New Media’s stock fell from nearly $11, and opened Friday trading at $7.86 a share. Both companies have scheduled shareholder votes for Thursday.

“If we had a vote, we would vote no," Lunzer said in the union’s statement.