Media company Gannett (NYSE:GCI) made an offer to buy Tribune Publishing (NYSE: TPUB) last month, which Tribune promptly declined. However, Gannett came back with a significantly higher bid, and it's possible a deal will go through this time.
If that happens, the two newspaper giants would in theory be stronger, as they could combine some back-office operations and spread expenses over more properties. The more fundamental question, however, is if bigger actually equals better when it comes to two companies in a struggling industry getting together.
In this segment from the Market Foolery podcast, Chris Hill, Jason Moser, and Taylor Muckerman explain what the move means, why Gannett is so interested in Tribune Publishing, and what might happen from here.
A full transcript follows the video.
This podcast was recorded on May 16, 2016.
Chris Hill: I think I need to begin today's episode by taking a little bite of humble pie. Eat a little crow, say what you will. You may recall, we recently talked about Gannett making a bid for Tribune Publishing, and Tribune Publishing stock just jacked up 50% or so, 60%, something like that. They turned it down, and I was floored by that. I thought, "Are you kidding me? With the deal that's on the table, you're going to walk away from that?"
And I have to eat some crow because shares of Tribune Publishing are up another 21% today because Gannett came back to the table with a higher bid! The original bid was to the tune of $815 million. This is $865 million or so. Well played, Tribune Publishing. They got a better deal. Are they going to take this one now?
Jason Moser: I would imagine so. It's always nice to know you have something that someone else wants. That's really the ultimate bottom line here. It makes you think of the Marriott/Starwood thing that was going on not too terribly long ago.
Hill: Lot of back and forth there.
Moser: Right, in an industry where it could be argued that scale is one of the greatest competitive advantages. The media space is significantly different. But, thanks to the Internet, it is a very fast-changing space, where I think it really behooves these big media properties to have a number of different sorts of brands in their portfolio, different ways they can reach out to the local economies, as it were. You see, what, Tribune has LA Times, among others.
Hill: And the Chicago Tribune.
Moser: Obviously a very big market too. Very big markets there. Given the way we get our news today, I said this, I think, last time we talked about this -- we used to care much more about the brand that was actually delivering the news. I don't think that really is the case so much anymore. So, a lot of these media companies are facing a really big choice here: either consolidate or face the possibility of going out of business.
Muckerman: Yeah, I'm wondering about the poison pill they put in last week. Oaktree Capital (NYSE:OAK), their second-largest shareholder, wanted the first deal to go through. So I'm assuming they're going to put even more pressure on them to allow this deal to go through.
Hill: And Oaktree has about 15%, I believe? It's a pretty sizable stake.
Muckerman: That's right, just behind the CEO or the founder. One individual is the largest shareholder, and then Oaktree Capital is the second-largest -- the largest non-insider I'm thinking.
Hill: Gannett has a friend in the room. That should help. We'll see how this plays out, obviously. But I think if they decide to reject this out of hand the way they did ... again, give Tribune Publishing credit. They got a higher offer, and they rejected that previous deal, I think, unanimously. But, I don't know, I think they would be wise to take a good, strong look at this. If I'm Gannett, and they get turned down, I think I'm going to go shopping elsewhere.
Muckerman: I think it was funny the way Gannett phrased it, "We reevaluated it, we think there might be more value we can extract ... " I'm thinking they just offered them the low offer to begin with.
Muckerman: And now they're like, "Oh, we'll just have an excuse as to why we're offering more money now." I can't imagine one extra week of due diligence arrived at 22% more value they could extract.
Moser: No doubt. It's the same in any negotiation. It's Negotiating 101. You throw out an offer there. If they take it, great. If they say no thanks, you can find some sort of middle ground. I suspect that's probably what's happening here.
Hill: It's good to be a shareholder of Tribune Publishing with your stock up about 85% in the last month.