Denver-based MNG Enterprises Inc., better known as Digital First Media, is making a bid to buy McLean, Virginia-based Gannett Co. Inc., a deal that would create the largest newspaper company in the U.S. The potential deal has local connections: Digital First owns the St. Paul Pioneer Press; Gannett, best known as the owner of USA Today, owns the St. Cloud Times. New York-based hedge fund Alden Global Capital LLC owns Digital First.
Another local connection? Digital First Media’s top executive is now Guy Gilmore, former publisher of the Pioneer Press. Gilmore joined the Pioneer Press in 2005 as vice president of circulation and was named publisher in 2007. In 2013, Digital First named him executive vice president for its eastern division. While overseeing 30 daily papers and other titles, Gilmore remained based in St. Paul and continued serving as Pioneer Press publisher. In October 2017, Gilmore was named Digital First’s chief operating officer after CEO Steve Rossi retired. Greg Mazanec, a regional publisher for Digital First, is the current publisher of the Pioneer Press.
Digital First offered $12 per share for Gannett, which would value the bid at approximately $1.36 billion. Gannett’s stock, which closed at $9.75 on Friday, shot up on the news. The stock closed at $11.82 on Monday, just eighteen cents per share shy of the offer from Digital First. MNG/Digital First has already built up a 7.5 percent ownership stake in Gannett.
The Washington D.C.-based NewsGuild-Communication Workers of America, which represents newspaper employees including Pioneer Press staffers, issued a statement denouncing the proposed deal: “The destruction of local newspapers by hedge funds and private equity firms is an underreported national crisis for our democracy, so today’s announced proposal by Digital First Media to purchase Gannett is of the greatest concern. The NewsGuild opposes any such purchase by DFM.”
In 2016, Pioneer Press employees launched a campaign sharply critical of Alden Global Capital and issued the call for a “local, civic-minded owner” to step forward and buy the paper. In some markets wealthy individuals have bought local dailies not because they are expecting huge profits, but because they view the papers as community assets. Pioneer Press staffers only need to look across the river for a high-profile local example: Minnesota billionaire businessman Glen Taylor acquired the Minneapolis-based Star Tribune in 2014.
Media analyst Ken Doctor sees the proposed Digital First/Gannett deal as the opening shot in another intensifying round of newspaper industry consolidation. A report from Dirks, Van Essen, Murray & April – a Santa Fe, New Mexico-based newspaper broker – tallied 36 separate newspaper sales in 2018. That marked the highest annual total since 2000 and the fourth straight year of an increase of the number of deals. Large players have been building regional clusters of papers while operators of independent dailies are finding it increasingly difficult to compete.
“The number of transactions has been rising each year,” said Doctor. “There’s a lot more consolidation to come.”
While newspapers everywhere have been steadily making cuts for more than a decade, Doctor says that traditional newspaper companies “are all trying to find a future for the business,” even as they make cuts.
But Doctor says that the hedge fund is purely “harvesting” profits from its newspaper operations. “Alden is not investing in digital subscriptions and has practically no centralization,” Doctor told Twin Cities Business.
Doctor has his own St. Paul connections: he worked at the Pioneer Press from 1986 to 1997, ultimately serving as managing editor.
Doctor adds that a Digital First acquisition of Gannett is not a foregone conclusion. He said that Gannett has already been talking to Chicago-based Tribune Media Co. about a possible deal.
While earning a reputation for the most aggressive cost-cutting in the industry, that strategy has also produced profit margins that exceed most of its peers. Digital First Media’s letter to Gannett reports its EBITDA (earnings before interest, taxes, depreciation and amortization) profit margin at 16.2 percent for its fiscal 2018 ending on June 30, 2018.
Digital First Media argues “the team leading Gannett has not demonstrated that it is capable of effectively running it as a public company” and describes itself as “experienced newspaper operators with a successful track record of acquiring newspaper businesses and running them in a profitable and sustainable way.”
On Monday, Gannett issued a brief statement saying that its board would “carefully review the proposal.”
The privately held Digital First Media owns approximately 200 newspapers including the Denver Post, San Jose Mercury News, Orange County Register and the Boston Herald. Digital First acquired the Boston Herald for nearly $12 million in 2018 when it emerged as the top bidder to buy the title out of bankruptcy.
Gannett posted $3.15 billion in revenue for 2017 with a nominal net profit of $6.9 million. Per its most recent annual filing, Gannett owns 110 daily publications in the U.S. and also has holdings in the U.K. Gannett’s largest metro dailies are the Arizona Republic, Detroit Free Press and the Milwaukee Journal Sentinel. The company’s regional holdings include the Des Moines Register in Iowa, the Argus Leader in Sioux Falls, South Dakota, and 11 titles in Wisconsin.
Data from the Washington D.C.-based Pew Research found that newspaper industry advertising revenue and employment have both been declining steadily since 2007. Pew estimated newspaper advertising sales at $16.5 billion in 2017, down more than 66 percent since 2006 when it stood at $49.3 million.