Thursday, August 09, 2007

Newsosaur nixes Gannett exit yarn

Notwithstanding shoot-from-the-hip speculation at the Wall Street Journal, it is unlikely Gannett is putting itself up for sale – or soon to be acquired by a media company or private-equity player.

Seizing on some fine print in a new filing at the Securities and Exchange Commission in which Gannett’s top managers adjusted the rigging of their golden parachutes, a Journal blogger asked, “Is Gannett Girding for a Sale?” In the spirit of the Journal's uncharacteristic headlinese, all I can say is: Newsosaur Nixes Gannett Exit Yarn.

Though the Journal may be right (and I, therefore, would be wrong), the chances of Gannett trying to sell itself are pretty slim, given that its stock is trading at a five-year low. Closing today at $47.34 a share, the stock is 47.6% lower than the peak of $90.42 it reached in April, 2004.

Unless Gannett’s management believes a fire sale is the only option left to it, there is no way its leadership willingly would put the company on the block – especially in light of the less-than-robust response to the Knight Ridder and Tribune Co. auctions. So, I don’t believe for a minute that Gannett’s managers are ready to call it quits. (UPDATE: The company affirms this conclusion here.)

When the shares of an asset producing high cash flows in monopoly-like markets are as depressed as those of Gannett, the company normally would become the target for a take-over by either a strategic corporate acquirer or a private-equity investor. While Gannett perfectly fits the description, these are not “normal” times for newspaper publishers.

With newspaper revenues having deteriorated for five straight quarters despite a generally expanding economy, almost any imaginable acquirer would be petrified by concerns about the future strength of the business.

Every publicly held newspaper company is fully stressed by the challenges involved in navigating its existing assets through though these treacherous times. Although the shares of Gatehouse uniquely have escaped the scourging suffered by all the other newspaper stocks, why would it, or any other publicly traded publisher, want its stock punished the way the market hammered McClatchy for the KRI deal?

While a large, privately held newspaper publisher like Hearst or Newhouse could buy Gannett without risking the wrath of Wall Street, do those owners want to heavy up on an industry whose outlook is unclear, if not to say uncertain?

A year or two ago, private equity buyers would have been all over the chance to buy Gannett. But the recent precipitous decline in newspaper values would make them fearful of overpaying for assets today that might be less valuable in the future. Further, the recent tightening of the credit markets would make the financing of any such transaction considerably more expensive by Labor Day than it would have been on Memorial Day.

Wall Street Journal reporters should take care not to draw too many generalizations from the recent acquisiton of their company by Rupert Murdoch. As discussed here previously, News Corp. has the strategic imperative, market power and financial muscle to ensure the success of its costly acquisition of Dow Jones. But the DJ deal is one of a kind.

In the absence of compelling reasons for any of the usual suspects to want to buy Gannett, the company, as far as these eyes can see, appears on track to remain independent.

Things being the way they are today in the newspaper business, however, I can understand why Gannett's brass wanted to make sure their parachutes were secure.


Blogger Unknown said...

I don't know, I've heard some pretty convincing rumors that GE might be interested in a takeover (see NewsVisual article: Do think that this sounds at all feasible?

10:28 AM  
Anonymous Anonymous said...

Gannett won't sell itself all at once, but it will slowly exit the newspaper business.

8:19 AM  

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