Lee Enterprises, McClatchy could be next print media deal darlings
Gannett's overture to Tribune Publishing underscores the fact that the newspaper business is still fragmented and likely due for more consolidation.
Gannett Co.'s aggressive bet on Tribune Publishing Co. highlights a continuing appetite for print media and more consolidation in what's still a relatively fragmented sector, according to industry observers who are pegging McClatchy Co. among the next likeliest takeout candidates.
USA Today publisher Gannett announced Monday that it has offered to purchase Tribune Publishing for $12.25 per share in cash. The price tag values the target at about $815 million, including $390 million of debt outstanding as of Dec. 31. The bid represents about a 63% premium to the closing price of the target on April 22 and equates to a multiple of about 5.6 times Ebitda.
In response, Tribune Publishing confirmed Monday the receipt of the proposal and said it's reviewing the bid with its financial and legal advisers.
"The take away from this deal, if it happens, is we're seeing that the big boys are willing to pay a premium price for what they deem to be appropriate," said Kevin Kamen, president and CEO of newspaper brokerage firm Kamen & Co. Group Services. "It will motivate more people to step back and take a hard look."
Among newspaper publishers, McClatchy could emerge as a potential takeout target, he said.
"If anybody's gonna be gobbled, it could be McClatchy," Kamen said.
He asserted that the Sacramento, Calif.-based media company could receive interest from Warren Buffett's BH Media Group Inc. and that McClatchy may be sold off piecemeal.
"Somebody could go after McClatchy if Tribune declines the offer," he further explained.
At the same time, McClatchy doesn't have as many attractive titles as Tribune Publishing, Kamen said. Tribune Publishing owns large regional daily newspapers such as the Los Angeles Times, Chicago Tribune and the Sun Sentinel, which serves Florida's Broward County. McClatchy, however, operates more localized papers, such as the Miami Herald, Sacramento Bee and Charlotte Observer.
The stock prices of print media groups reacted positively to the deal talks between Tribune Publishing and Gannett, particularly Lee Enterprises Inc. Shares of Lee Enterprise finished at $2.26 Tuesday, up 10.24%. (McClatchy stock ended at $1.13, down 5.8%.)
While Lee Enterprises is likely to focus on debt reduction over the next 24 months, it "absolutely" makes sense as an acquisition target over time, according to Odeon Capital Group LLC analyst Andrew Gadlin.
He said Lee Enterprises' strong management team and high margins are the Davenport, Iowa-based newspaper publisher's strength.
"There's a bright future for hyper-local newspapers with unique content," Gadlin said.
The hyper-local segment of the newspaper business hasn't seen its revenue decline as rapidly as the rest of the print media group has.
Meanwhile, Moody's Investors Service Inc. analyst Carl Salas compared the Tribune Publishing-Gannett situation to the three-way battle among Nexstar Broadcast Group Inc., Media General Inc. and Meredith Corp. from earlier in the year.
Nexstar Broadcasting on Sept. 28 made a $4.1 billion takeout bid for Media General, which had offered to acquire Meredith for $2.4 billion. Nexstar eventually emerged as the winner in late January following a six-month pursuit.
Like Nexstar, Tribune Publishing has emerged as both an acquirer and an acquisition candidate, Salas said. In fact, Tribune Publishing bought San Diego Union-Tribune last year and dropped its bid for Freedom Communications Inc. earlier this year due to regulatory concerns.
"It doesn't come as a surprise," Salas said of the Tribune-Gannett talks, adding that more consolidation will take place in the newspaper sector as the industry matures. "Frankly, excluding New York Times Co. and excluding some of the entities that are family-controlled, anyone is a candidate to be a consolidator or be consolidated. There's no question about that."
As for Tribune Publishing, a wild card in the ongoing deal talks would be if the Chicago-based newspaper group receives interest for individual publications from other parties, said Kamen & Co.'s Kamen, adding that BH Group could show go after the company's Orlando, Fla., properties while New Media may step in for Connecticut and Baltimore assets.
Officials with McClatchy didn't return calls, while those with Lee Enterprises declined comment Tuesday.
