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Call it megacluster.
If a GateHouse / Gannett merger – according to a rumor circulating for weeks, would today be a late-stage deal of the Wall Street Journal -, one in six daily newspapers in the United States would belong to a single company. In total, 267 dailies would come under a single property and management. It is an unprecedented concentration of control in the history of the American press.
(In 1977, the New York Times wrote with concern about the increasing concentration of newspaper ownership, citing Gannett's 60 daily newspapers as the largest chain in the country, at the time the United States had 1 756 dailies, and Gannett owned 1 of every 29. Times change.)
Megaclustering is a notion I first wrote two years ago when I envisioned the possibility of a GateHouse + Gannett + Digital First Media combination. And it's again a combination that could fall from today's consolidation negotiations.
Of course, a merger between Gannett and GateHouse is not a done deal and the discussions are not even so advanced. The story of today's Journal has drawn new attention to the connection potential, on which I have reported a few columns here at the Nieman Lab over the last month. Such a merger would win the 2019 Consolidation Games champion title, the newspaper's main driving force in 2019. Merge, buy or sell – they're all about to cut costs in this disastrous advertising climate. one way or another.
It is not ironic to think that this type of merger could well be considered a success by Alden Global Capital, the well-established newspaper firm that poured gasoline into this round of bargaining, claiming to want to buy Gannett back. January. But Alden never provided funding for the deal, and many thought he just wanted to put Gannett in a mergers and acquisitions game in order to take advantage of the 7.5% stake she already holds in the company .
Gannett won the battle to defeat Alden. But at stake, it's obvious.
Sector observers appreciate the shape of this potential agreement. Upcoming financial attractions:
- The match between the Gannett cards and GateHouse. Both companies have closely examined the point of convergence or overlap of their newspapers, and an enterprising data-viz creator could help us play at home. With 267 dailies, as well as many weeklies and trade publications, we've all seen how similar the GateHouse and Gannett points are. The greater the correspondence, the greater the synergies. Talking about that:
- Synergy saving. "A back-office duplication of 40 to 50 million dollars," says a financial observer. The distribution, printing and sale of ads would all be regionalised. Not to mention more "regionalized" reports. Last week, I detailed the combination of the 200 GateHouse layoffs and the launch of regional investigation teams. This is part of a permanent trend – and a trend that could be overfed by this merger. "Local" newspapers are increasingly regionalized in their journalism as well as in all their commercial functions. In this big market, such financial synergies would probably be priced between $ 125 million and $ 175 million. Of course, the costs – massive redundancy payments and associated "closing" costs – are generally amortized in the synergy sales sector. Nevertheless, the savings are real and they are the main driver of this agreement.
In fact, these two companies – and their peers, including Tribune, McClatchy, Lee and MNG Enterprises of Alden Global Capital – all hit the wall in mid-2019. They are trying to make their businesses more digital and less reliant on printing, but they have little money to invest in these changes. The endless depression of print advertising – it will be down 10 to 15% this year, as has been the case in recent years – has made their transformation almost impossible. When they lay off staff, they know they can not do it forever without seeing even greater losses in the flow of impressions.
Thus, mergers and acquisitions are only solutions offering significant short-term savings. Does any of these publishers have a big project to turn things around, to make daily publishing once again – after a decline of more than a decade – a growing business? No, but they hope consolidation will save them time – maybe two years – to survive and continue to promote "transformation".
So, what are the chances that this deal will happen?
We can now say that Gannett + GateHouse should be a better bet than Gannett + Tribune, another combination that has been intermittently discussed.
Gannett + GateHouse would be a larger company, which makes it more attractive and the synergies between the two channel's markets – concentrated on medium-sized and smaller properties – make more sense than combining with larger Tribune markets .
But as I have noted throughout this year's various consolidation and decay movements, logic is one thing, evaluation is another.
What value does each company really bring to the transaction? This will be the argument. In recent years, GateHouse has generally earned more market credits, a valuation based on a higher earnings multiple. Both companies, like most of their peers, experienced a steady decline in share prices. Value-oriented investors (and all others) worry more and more about the power of newspaper revenues.
The markets have not reacted much to the story of today's Journal. Gannett's share price rose when the market felt that Alden's interest in the purchase was real. But now, it has fallen by less than $ 8 per share and it has barely moved that today: closing 1.5% after a brief 5% increase in the magazine's report. GateHouse, which is trading under its New Media Investment Group owner, has also gone through a terrible period, with a drop of more than 50% since last July to reach about $ 9. It was up 4% today.
So we come to the questions of the bankers: what is the price of Gannett's purchase by GateHouse? How much is in stock, how much in cash? While the Gannett committee definitely uses its conference lines, the numbers – Goldman Sachs represents Gannett – handle spreadsheet formulas over and over.
Remember, Gannett does not even have a CEO at the moment. Bob Dickey retired earlier this month, as he announced last December, and Gannett's board has yet to appoint a replacement – a job he has held since the beginning of the year. conflict with Alden two weeks ago. Was his reluctance to announce a new big boss – the one who would likely get a gold parachute of about $ 10 million if the company was sold – an integral part of the GateHouse Talks?
It could be.
Mike Reed of GateHouse – described in the business with phrases such as "disciplined trader" and "big business maker" – could emerge as CEO of the merged company. He is a 30-year veteran in the news industry. During our long interview at the lab last year, Reed detailed his strategy for GateHouse. If Gannett is merged, expect Reed to double, combine the digital marketing activities of both companies and focus on expanding event-related activities.
If a large If – this chip falls into place, the consolidation games will pass to the next turn. Perhaps then McClatchy and Tribune – having found little help in the mating market and the closing of the bar soon – discussions that failed in December? And what about Alden? Could he take papers that a Gannett + GateHouse might have to get rid of for antitrust reasons? What other games could he consider?
Finally, the important question: Is it good for journalism or for the communities served by daily journalism? This is what should interest us most in all this, and it can be lost.
This move – along with the other clusters that have been in operation until this year – is financially strategic. This is not journalistically strategic. These two companies have implemented various editorial strategies – some disparate, some serious, others with a real potential for community service – and both are seriously hampered by declining editorial budgets. This kind of consolidation would save time. The question of how this time, as well as the money saved, is reinvested in a long-term solution to the problems of local journalism is still unresolved. Still needed: more capital and better vision.
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