I remember my horror and chagrin when my hometown paper, The Courier-Journal in Louisville, KY, passed in 1986 from ownership by the esteemed Bingham family to the newspaper chain Gannett.
I couldn’t imagine that paper, which had been one of the best in the country, becoming part of a cookie-cutter operation known for cutting staff and paring back local autonomy.
But, sure enough, that beloved paper got chewed up in the maw of the newspaper giant and passed from being a driving force to a bit player on the local scene.
But now, it appears, things are about to get even worse for the approximately 100 daily papers Gannett owns.
Sunday night (and in yesterday’s print edition) the Wall Street Journal broke the story that a hedge-fund backed media group called Digital First Media was planning to make an unsolicited offer for Gannett — all of Gannett. And that’s what happened yesterday morning, when Digital First made a $12-per-share offer for Gannett, whose stock closed at $9.75 last Friday.
Indicative of what’s been going on elsewhere — including with Kansas City Star owner McClatchy Co. — Gannett had lost sufficient market value that it will have a hard time fending off what is probably an unwelcome bid.
Despite the overall anemic state of the newspaper industry, daily newspapers continue to generate a lot of revenue, which makes them appealing to the hedge-fund operators.
Like catfish after minnows, the hedge funds have been moving into the newspaper waters with the idea of “harvesting marketing position,” or, more colorfully, gorging themselves on the revenue and then swimming away from the detritus.
That’s what Digital First has done in Denver at the Denver Post. Last year, Alden Global Capital, the hedge fund that controls Digital First, sent shock waves through the newsroom when it announced it was laying off an additional 30 Post employees, after having decimated the staff over the preceding years. One report said Alden’s announcement of the layoffs was greeted with “sobs, gasps, expletives.”
“Sobs, gasps, expletives” greeted the announcement of a new round of layoffs at the Denver Post last year.
It’s not clear how Gannett will respond to Digital First’s offer, but it issued a statement yesterday, saying its board would “carefully review the proposal…to determine the course of action that it believes is in the best interest of the company and Gannett shareholders.”
What could develop now is a merger between Gannett and Tribune Publishing, the Chicago-based chain that owns The Chicago Tribune and several other large newspapers, including the Orlando Sentinel and the South Florida Sun-Sentinel. Gannett made a big push to buy Tribune two years ago but backed away at the last minute. With Digital First lurking outside the door, it could push Gannett to renew its courtship with Tribune.
Ken Doctor
In a blog post yesterday, Ken Doctor, the nation’s foremost newspaper industry analyst, predicted merger and acquisitions would be the big newspaper-industry stories this year.
He wrote:
“Consolidation (and the cost-cutting that comes with it) remains the dominant strategy in the daily newspaper industry. If revenue continues to drop at or even near double-digit levels, the consensus thinking is that radically reducing expenses through consolidation is about as good a card as anyone has to play. Eliminate or reduce corporate staffs, centralize everything that can be centralized, and maybe in some cases continue to make small investments in newer revenue streams.”
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You will recall (yes, you will) that McClatchy made a run at Tribune late last year, but Tribune rejected its offer.
I doubt McClatchy is in a position to renew its pursuit of Tribune. McClatchy’s largest single investor and creditor is another hedge fund, Chatham Asset Management, but McClatchy and Chatham are boxed in by an $800-million debt, a remnant of McClatchy’s 2006 purchase of the Knight Ridder chain.
…With the hedge funds now striking out more aggressively at the newspaper industry, it is clearer than ever that the best hope for newspapers trapped in the netting of the big chains is to be purchased by wealthy local individuals who believe in the viability and importance of locally owned newspapers.
Patrick Soon-Shiong
That has happened, among other places, in Washington D.C., Boston, Philadelphia, Minneapolis and, last year, Los Angeles, where a surgeon and entrepreneur named Patrick Soon-Shiong purchased The Los Angeles Times and the San Diego Union Tribune from Tribune Publishing for $500 million.
Soon-Shiong didn’t buy the papers as gifts to those cities; he bought them because he believes he can invest in them and inject them with new life.
I share Soon-Shiong’s belief in local newspapers. The Star, too, could be resurgent. Yes, it will continue to fade as a print product, but with a debt-free restart, wise management and good marketing, I believe it could be developed into a first-rate, online product.
The hardest part would be prying it loose from the grubby hands of Chatham and McClatchy. That would be the case even in bankruptcy because the catfish would be circling, eyeing the whole 29-part chain. With The Star being the most profitable paper in the McClatchy chain, it would go for a hefty premium, whether bought straight from McClatchy or from whatever outfit succeeds McClatchy.
But have no illusions: It’s the last, best chance for The Star to regain its former status as an outstanding information provider and a critical part of the Kansas City fabric. Somebody needs to Save our Star.
My LA Times improves every day under Soon-Shiong’s ownership. More reporters plus a reinvigorated newsroom shows.
That is great to hear, Tom. It’s what I expected, but you don’t know ’til you see it before your eyes.
The problem is that there are more newspapers, like the Journal-World, who leave private hands and get snapped up by the conglomerates than the other way around. There is a greater likelihood that the Star would be purchased along with the rest of McClatchy’s holdings by a hedge fund vulture than a local savior (although I know at least one group locally that would like to buy The Star).
Thanks for keeping us posted on the largely dismal national newspaper situation, the context in which our Star still swims.
I’m glad you’re interested, Vern.