LA WATCHDOG--The Wall Street Journal is reporting that Gannett, the nation’s largest publisher of newspapers, has sweetened its offer to purchase Tribune Publishing* (“Tribune” or the “Company”), the owner of the Los Angeles Times, The San Diego Union-Tribune, the Chicago Tribune, and six other daily newspapers around the country. (Note: Tribune Publishing changed its name to “tronc,” which was derived from TRibune ONline Content.)
While the terms of this overture were not disclosed, it is most likely north of the all cash $15 a share offer that was rejected out of hand by Tribune’s Board of Directors in late May. But this unilateral action of the Board was not appreciated by many of the other shareholders who believed that this offer, double the price of the stock when Gannett made it first offer in April, represented an excellent price for Tribune.
The back story of this rejection of Gannett’s very generous offer started in February with the private sale of 15% of Tribune’s stock at a below market price to Michael Ferro, a Chicago based internet entrepreneur, in a back room deal most likely orchestrated by Eddy Hartenstein, the then Chairman of the Board and the former publisher of the Los Angeles Times. Hartenstein, not to his credit, was an associate of Sam Zell, the controversial Chicago based financial wizard who was responsible for the 2008 bankruptcy of the Tribune Company, the former parent of the Company, that was saddled with $13 billion of leveraged buyout debt.
Within two months, Ferro had fired the Chief Executive Officer, replaced him with one of his long time henchman, and reconstituted the Board of Directors, leaving him with absolute control of Tribune. Today, Hartenstein is one of the two remaining directors.
In May, subsequent to Gannett’s offer of $15 a share, Ferro engineered the private sale of 5 million shares at $15 a share (a total of $75 million) to Patrick Soon-Shiong, a Westside medical entrepreneur who is reputedly the wealthiest person in Los Angeles. (He also owns a minority interest in the Los Angeles Lakers which he purchased from Magic Johnson.) Combined, Ferro and Soon-Shiong, now the Vice Chairman of Tribune, own 28% of the stock and control the Board of Directors.
But the other 72% of the shareholders, many of which are sophisticated institutional investors and hedge funds, will not be happy campers if Tribune rejects another very generous offer from Gannett. And this time, it will result in litigation.
On June 13, Oaktree Capital Management, a well-respected Los Angeles based investment firm and the owner of 13% of Tribune stock (18% prior to the diluting sales to Ferro and Song-Shiong), sent a five page letter to Tribune asserting its right under Delaware Law to inspect the books and records of the Company. Of particular interest are the shenanigans associated with the February below market sale of over 5 million shares to Ferro and the subsequent actions that allowed Ferro to seize control of the Company without paying a premium price.
Other institutional investors have also indicated their displeasure at the cavalier rejection of Gannett’s offer, calling for the Board to retain an independent financial advisor to determine the fairness of the Gannett offer and to enter into negotiations with Gannett.
According to The Wall Street Journal, Tribune is expected to respond to the new offer by the end of the week. At that time, we will know if the Company has entered into a $1 billion deal with Gannett (this includes almost $400 million in debt). Tribune’s Board may also decide to enter into negotiations with Gannett with the desire to increase the offer or to entertain offers from other potential purchasers, including News Corporation, a company controlled by Rupert Murdoch.
If the Board of Directors rejects Gannett’s generous offer, the outside shareholders will no doubt haul the Company and its directors into court in an attempt to force the Tribune to sell the Company.
Alternatively, Gannett may bide its time and launch, with the support of the outside investors, a proxy contest to oust the current directors at next year’s annual meeting.
In any case, stay tuned.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at: firstname.lastname@example.org.)