Gannett pulls offer for Tronc, publisher of Chicago Tribune

Gannett on Tuesday ended its six-month pursuit of Tronc, the Chicago-based newspaper company that publishes the Chicago Tribune, Los Angeles Times and seven other major newspapers.

Gannett's early morning announcement scuttling the proposed deal — one that was set to go before Tronc's board with a reported price of $18.75 a share — followed reports last week that banks had withdrawn financing.

Tronc shares tumbled Tuesday, closing at $10.54 a share, down more than 12 percent, while Gannett's shares lost more than 2 percent to close at $7.59

"We are disappointed that in the face of reported challenges surrounding financing, Gannett's board determined it would not complete the transaction that it began in unsolicited and hostile fashion last April," Tronc CEO Justin Dearborn said during a third-quarter earnings call Tuesday afternoon.

Tronc was prepared to sign the merger agreement Oct. 26, Dearborn said. "We were at the finish line on that and had an executable merger agreement," he said.

Gannett downplayed the role of financing in killing the deal. "Gannett had a number of financing options available and determined to terminate discussions with Tronc after considering both accretion to shareholders and whether the terms make sense for the company," the company said in a statement.

Cowen and Co. analyst Lance Vitanza said Tuesday he believed Gannett would regroup and eventually return with another offer.

"We don't think for a minute it has anything to do with banks not being there," Vitanza said. "We think it has everything to do with Gannett playing the walk-away card. They are doing so because they correctly perceive that they will be able to come back and get it via a hostile basis at a much cheaper price."

Gannett waged a largely symbolic proxy fight encouraging shareholders to withhold support for Tronc's board at its annual meeting in June, having missed the deadline to nominate a competing slate. Vitanza said Gannett won't make that mistake again if it comes back to bid on the company formerly known as Tribune Publishing.

"They won't miss the deadline this next go-round," Vitanza said.

Shareholders pressured Tronc to negotiate with Gannett for months, with several lawsuits filed and a larger one potentially looming. In June, investment firm Oaktree Capital Management, which owns roughly 13 percent of Tronc's shares, requested records to determine whether to initiate a shareholder derivative suit.

Calls to Oaktree regarding its potential lawsuit were not returned Tuesday.

Tronc released its third-quarter earnings report after the market closed Tuesday, with revenues declining 6.8 percent to $378 million. Advertising revenue was down 10.9 percent from the same quarter last year, reflecting broad newspaper industry declines.

Net loss for the quarter was nearly $10.5 million, or 29 cents per share. The company lost $8.6 million, or 33 cents per share, during the same quarter last year.

On Thursday, trading of Tronc shares was temporarily halted after a report that banks potentially involved in Gannett's effort to acquire the Chicago-based newspaper company had pulled out, sinking the stock of both companies. Earlier Thursday, Gannett issued a tepid earnings report, and CEO Bob Dickey said the company was committed to pursuing acquisitions, but ones that made sense.

"We're not just going to add properties for the sake of adding properties," Dickey said on an earnings call with analysts.

McLean, Va.-based Gannett, publisher of USA Today and more than 100 other titles, previously said acquiring Tronc would fill a number of geographic coverage gaps for its nascent USA Today Network online. The USA Today network had 119 million unique monthly visitors in August, while Tronc newspaper websites reached about 63 million, according to comScore.

Gannett has pursued an acquisition strategy since spinning off from its broadcast parent last year. In July, Dickey said the company sought to add another 15 to 30 newspaper titles to its portfolio as part of its strategy to offset declining newspaper revenues and accelerate its digital transformation.

Tronc rebuffed Gannett since an unsolicited $12.25-per-share offer was made public in April, adopting a "poison pill" approach to prevent a tender offer and force negotiations to run through the board.

Gannett upped the ante with a $15-per-share bid in May, which also was rejected by Tronc Chairman Michael Ferro and the board, who said their plan for leveraging the digital assets of the legacy newspaper chain would bring more value to shareholders.

On the earnings call Tuesday, Dearborn expressed confidence in Tronc's digital transformation plan as a stand-alone company, but said the protracted negotiations with Gannett left it behind schedule.

"As we actively engaged in discussions with Gannett, we delayed the implementation of many of our initiatives," Dearborn said. "Our team has made progress in positioning the company for the future by leveraging the strengths of our brands and our assets in a short period of time. While there is no doubt work remains to be done, we are confident of our plans going forward."

rchannick@chicagotribune.com

Twitter @RobertChannick

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