Five cliffhangers as the Gannett-GateHouse merger vote nears

Shareholders of Gannett and the GateHouse chain’s parent, New Media Investment Group, vote Thursday on whether to approve a merger of the two companies in which New Media will take charge.

It will create the nation’s largest newspaper company as measured by the number of daily titles (266) and circulation (8.7 million in print).

Three weeks ago I would have said that passage was a slam dunk for the deal announced Aug. 5. I am still betting on approval, but there have been some twists worth noting.

Expect cuts beginning next week, including in newsrooms. I learned that GateHouse editors have been put on notice to prepare for those layoffs, even with the ink hardly dry on their 2020 budgets.

A cost reduction number has not yet been specified, and in some places the target will be by state or region rather than individually at the chain’s 156 outlets. But the advisory to editors is that 65% of the savings come from compensation to staff or stringers.

A similar directive has gone to Gannett’s 110 newsrooms with reductions of as much as 10% expected. A Gannett source tells me that editors have been told only 5-10% of cost-saving synergies will come from the newsroom.

Next week’s cuts are likely to be followed by more early in 2020.

I emailed both GateHouse and Gannett seeking more detail but have not yet heard back.

Influential billionaire investor Leon Cooperman has splashed cold water on management projections being offered to justify the deal. Much attention has been given to New Media CEO Mike Reed’s promise that the merged companies will be able to realize $275 million to $300 million in cost-saving synergies, the majority of those in business operations.

But Cooperman’s doubts were more on the revenue and profit side. During an investor conference call Oct. 31 as New Media announced its third-quarter earnings, Cooperman said “nobody believes any of the numbers coming out.”

He did not see how the merged company could cut the annual rate of revenue loss in half from the current 7-9% to 3-4% within three years, as Reed has said. Similarly, he thought profit estimates were overly rosy.

Nonetheless, Cooperman said that he would vote in favor of the merger, hoping that Reed could pull off those results.

Possibly in reaction to Cooperman’s comments, the value of New Media shares has tanked over the last two weeks, opening in early Wednesday trading at $6.98. The price had been $10.70 when the deal was announced and $9.38 as recently as Oct. 28.

The takeover offer to Gannett shareholders is roughly half cash, half stock. So they will be getting about 34% less on the stock portion than originally anticipated, about 17% less overall.

Theoretically, big Gannett investors could walk away from the deal as a result, but I don’t think that is likely. In a very lengthy prospectus in advance of this week’s shareholder meetings, Gannett management indicated, in essence, that the combination was essential to ensure the future of the company.

While New Media is the acquirer, the new company will be known as Gannett and operate out of Gannett’s headquarters in suburban Washington, D.C. That’s partly a matter of branding but may be more.

Reed will still be CEO, but the other two top executives, operating CEO Paul Bascobert and chief financial officer Alison Engel, come from Gannett.

Apprehension over the coming job eliminations runs high in the top ranks at both companies, but several sources tell me it is stronger at the GateHouse properties.

Gannett is considered farther down the road to digital transition and has reorganized many business and editorial functions with top-down corporate reporting rather than by paper or even by region. That makes GateHouse’s ranks of more traditional publishers candidates for being let go.

The NewsGuild, as reported by The Washington Post, published a critique of the deal last week. Hedge fund-related owners (Fortress Investment Group) and the private equity fund financing the deal (Apollo Global Management) will prosper, the Guild’s position paper argues, while journalism suffers.

The union’s objections are not surprising nor likely to influence the vote. And the guild has no direct way to prevent layoffs. But drastic newsroom staff reductions have fueled a series of successful guild organizing drives, including one this fall at Gannett’s flagship regional, the Arizona Republic.

Count on the guild to shine a bright light, through publicity or picketing, on how many journalists lose their jobs as the merger takes root, and to target another round of organizing campaigns at new Gannett.

I see Reed under the gun to begin delivering on the promised savings. He will also need to spell out more specifically the positive impact on revenues to win back skeptical investors.

Tell me Thursday evening if I have it wrong.

Rick Edmonds is Poynter’s media business analyst. He can be reached at redmonds@poynter.org.

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