Gannett offered to buy Tribune Publishing, the owner of the Los Angeles Times and Chicago Tribune, on Monday in a $815 million deal that would bulk up its newspaper holdings in a period of industry decline.
If Tribune accepts the offer, McLean-based Gannett, a national media company and publisher of USA Today, would emerge with a daily circulation of more than 7 million, according to data from the Alliance for Audited Media.
Tribune said in a statement that it is reviewing Gannett’s offer. “The board is committed to acting in the best interests of shareholders and will respond to Gannett as quickly as feasible,” Tribune said.
Gannett offered Tribune $12.25 a share in cash, a 63 percent premium to its stock closing price Friday. It would also assume $390 million in Tribune debt, bringing the potential deal value to $815 million.
Gannett initially approached Tribune with an offer April 12 and has been disappointed” by Tribune’s response and the company’s “continued refusal to begin constructive discussions with us,” Robert Dickey, president of Gannett, said in a letter to Tribune CEO Justin Dearborn.
The tone of the letter suggests that cementing a deal between the two media giants might not be simple. But the prospect of a deal was cheered on Wall Street where investors sent shares in both companies up. Gannett gained more than 6 percent Monday, while Tribune’s stock, which has been declining for more than year, jumped more than 50 percent.
“As a public company in a very challenged industry, it’s very hard to say no to a premium like this for your shareholders. Unless someone else shows up at a higher price, my hunch is that a deal gets done,” said Jim Friedlich, chief executive of Empirical Media, which advises media companies on their digital strategy and consulted with Tribune Company in 2012-13, before it spun off its newspaper business as Tribune Publishing. (Tribune Media retains control of more than a dozen television stations, including WGN America, a national network.)
The potential merger comes at a difficult time in the publishing industry as readers continue to move online, where digital-advertising revenue has been slow to make up for steep losses in print advertising.
If Tribune accepts Gannett’s offer, it would put some of the country’s most recognizable news media properties under a single owner. In addition to USA Today, Gannett owns the Detroit Free Press and the Des Moines Register. In addition to the Los Angeles Times and Chicago Tribune, the Tribune owns the Baltimore Sun and Orlando Sentinel.
Gannett’s newspapers have a combined daily circulation of about 5.5 million, while Tribune has a daily circulation of about 1.5 million, according to Alliance for Audited Media.
The deal would allow Gannett to venture into new markets and give a boost to regional newspapers, said Tony Scherrer, director of research of Smead Capital Management, which owns a 5 percent stake in Gannett.
“They are extending their national footprint and that also helps them in their local papers,” he said.
The acquisition could also make Gannett more attractive to advertisers, Scherrer said. “And if you want to broadly sweep the U.S. newspaper advertising market, they just a got a lot more attractive to you,” he said.
Tribune Publishing has been in turmoil for some time. In 2007, real estate mogul Sam Zell announced a $8.2 billion deal for Tribune Company, but the firm fell into bankruptcy shortly afterward.
Tribune Publishing was spun off from the parent company in 2014 and has struggled since. In February, Tribune CEO Jack Griffin was fired by Michael Ferro, a Chicago entrepreneur who invested in the company and was named chairman of the board.
It is unclear whether the potential merger may face government resistance. It comes one month after the Justice Department sued to block Tribune from buying two California newspapers, arguing that it would create a newspaper monopoly in Southern California.
There is less potential market overlap with this acquisition, which may quiet some regulatory concerns, industry officials said. The Justice Department declined to comment.
The deal could help Gannett deepen its national audience, industry officials said. “Gannett has historically shied away from large metro papers,” Friedlich from Empirical Media said. “But digital scale appears to have trumped the concerns they may have about big-city newspaper economics.”