Gannett Rejects Digital First Media’s Unsolicited Buyout Offer

Stating the offer undervalued the company, was not credible and not in the best interests of the company or its shareholders

On Monday, Gannett Co., Inc. (NYSE: GCI) announced that its board of directors had unanimously rejected an unsolicited $1.4 billion buyout offer from Digital First Media, a hedge-fund-backed media company officially known as MNG Enterprises, Inc. Gannett, who owns USA Today, the Detroit Free Press and the IndyStar newspapers, among others, said Digital First’s proposal to acquire the company and its assets for $12.00 per share was not credible, it undervalued the company, and the proposal was not in the best interests of the company or its shareholders.

“Our board of directors is confident that Gannett has significant value creation potential. Our vision and pursuit of our digital transformation, combined with our USA TODAY NETWORK strategy, enables us to serve more directly and efficiently the persistent demand of our audiences and customers to engage with their communities,” said J. Jeffry Louis, chairman of Gannett’s board, in a February 4 news release.

“We believe that our future – and that of the industry – turns on thoughtful investments in journalism and marketing solutions, so we can deliver engagement when, where and how our audiences and customers demand it. Delivering on this purpose will deliver value to our shareholders and benefit the communities we serve,” added Louis.

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Louis said the board recognizes there are challenges and believes the company has the expertise needed to adapt its business model to meet those challenges.

“We are uniquely positioned to grow this company and its valuable assets,” Louis said.

The news release outlined some of Gannett’s strengths, including the following:

  • Emphasis on being a trusted digital marketing partner to local and national businesses
  • Using organic investment and acquisitions of marketing services businesses to provide best-in-class digital marketing products
  • Combining local and national news organizations, branded as part of the USA TODAY NETWORK, to offer innovative customer experiences
  • Competitive advantage through an expanded consumer audience and additional monetization opportunities
  • Gannett’s large customer base of consumers and marketing partners

Of particular concern to Gannett was the fact that Digital First did not reach out to Gannett about an acquisition offer until The Wall Street Journal published an article about a takeover bid on January 13, 2019 and Digital First made a public announcement on January 14. Gannett reached out to Digital First to discuss its offer, including how the company would finance an acquisition, address potential regulatory challenges and handle Gannett employees and communities, but Digital First required a nondisclosure agreement before agreeing to any discussions.

“In light of this, Gannett now questions MNG’s motives and can only conclude that the proposed NDA is a distraction designed to mask MNG’s inability to finance and complete the proposed transaction. Indeed, given MNG’s refusal to provide even the most basic answers to Gannett’s questions, it appears that MNG does not have a realistic plan to acquire Gannett,” said Gannett in Monday’s news release.

“As a public company, Gannett’s board would engage with any party that makes a bona fide, credible proposal that appropriately values the company and is capable of being closed. MNG’s proposal fails that test,” Gannett said.

Two hours after Gannett’s news release, MNG, who owns 7.5 percent stake in Gannett now, fired back with its own, stating Gannett had no credible plan to raise Gannett value to $12.00 per share and that the board was an impediment to Gannett achieving real vision or value going forward.

“Gannett’s board today sent shareholders a clear message: that it intends to block immediate and certain value creation opportunities in favor of a speculative future engineered by the team that already has destroyed over 40 percent of the company’s value. Gannett’s long-suffering shareholders cannot afford to wait any longer. The only responsible course is for Gannett to engage in a genuine pursuit to maximize value, either from MNG or others with reported interest,” said MNG in the news release.

“The sad reality for Gannett shareholders is the company has no credible plan to attain a $12 per share valuation on its own. Gannett’s ‘pie in the sky’ hopes for its digital businesses are not believable and cannot be counted on to deliver value superior to the immediate and substantial premium being offered by MNG – and that may be available from other parties. Gannett is presiding over a declining core business, decreasing cash flow and significant leverage because it overpaid for digital assets. Gannett’s deep structural problems are better fixed by experienced operators such as MNG, away from pressures of the public markets,” MNG added.

MNG, or Digital First Media, owns about 200 newspapers and other publications, including The Orange County Register, Boston Herald, Akron News Reporter and the Denver Post.

Insider Take:

There isn’t much that we can add to what the parties involved have already said. Both companies stated they are open to discussions about the matter, but it seems unlikely, given the “he said, she said” nature of their responses to the situation. MNG is behaving as if it offered Gannett a screaming deal, yet as of 4:53 p.m. EST, Gannett stock was valued at $10.99 a share.