USA Today Publisher’s Win Over Hedge Fund Is Dog Bites Man
(Bloomberg Opinion) -- A proxy fight at Gannett Co. that has looked amateur from the start has met its appropriate end. Now what?
Gannett, the owner of USA Today and other titles, said on Thursday that all eight of its nominees were elected to the board, beating out a hostile slate from MNG Enterprises Inc., the newspaper publisher that’s better known as Digital First Media and is backed by hedge fund Alden Global. MNG launched the proxy fight to try to force Gannett to consider a $12-a-share takeover bid that it had snubbed as too low and too uncertain.
The financing for that offer was never firm, despite MNG’s comical attempts to suggest otherwise. Typically, acquirers get banks to write letters expressing confidence in their ability to arrange debt financing to support the proposed takeover. MNG got Oaktree Capital Management to write a letter in a similar vein– with the notable difference being that Oaktree seemingly was making no commitment to help with raising funds for a Gannett buyout and was merely expressing an opinion. MNG’s board slate was a conflicted mix of current or former executives, Alden Global employees and directors of the Alden Global-backed drugstore chain Fred’s Inc. It trimmed its slate from six to three in April in an early sign this wasn’t likely to go MNG’s way.
Anyway, now it’s over. Or at least this leg of Gannett’s journey is. No one should shed any tears about that because Alden Global would have been a terrible owner of Gannett’s newspapers. The slash and burn mentality with which it manages its own journalistic holdings is one piece of evidence; the downward spiral of Fred’s, which counts Alden Global as its biggest shareholder and the fund’s president Heath Freeman as its chairman, is another. Fred’s said earlier this month in its 10K annual report that there’s substantial doubt about its ability to continue as a going concern. The company announced Thursday it would close an additional 104 under-performing stores and had entered into a forbearance agreement with its lenders.
But the Gannett board’s prize for winning this fight is to continue the long slog of trying to salvage what appears to be a melting ice cube of a business. Print-advertising revenue continues to slump and the digital endeavors that MNG criticized are only doing so much to pick up the slack. Gannett is also without a permanent CEO right now: former leader Bob Dickey departed as planned on May 7 and no successor has been named yet, perhaps because the board was too busy fighting off MNG. Gannett may now try to revive merger talks with Tribune Publishing Co., which rejected its advances in 2016 but has since replaced the CEO and chairman who led that resistance and is struggling in its own right. That’s hardly a risk-free fix to the newspaper industry’s revenue problems, however.
I realize this may not be a very popular recruiting tool, but I have a suggestion for the Gannett board and those of other media companies: Quit spending so much money on your executives. Gannett said earlier this month that it expects the CEO transition to create roughly $8 million in one-time costs this year. For context, Gannett reported an $11.9 million GAAP loss in the first quarter amid restructuring charges. It didn’t elaborate on what these CEO transition expenses were specifically. But Dickey, who received a total of $5.3 million in compensation last year (118 times the pay for the median employee) and $8.7 million the year before that, also entered into a lucrative transition agreement with Gannett. Under the terms of this arrangement, Gannett agreed to pay him $435,000 a month for his work this year through his May retirement as well as a special cash payout of $1 million, provided he didn’t jump ship any earlier than that without a successor and agreed to a release of claims on the company. Dickey will also get $75,000 a month from his retirement through October to act as a non-employee consultant and advise his eventual replacement. This seems like a rather expensive cover-up for poor succession planning.
Gannett may have survived MNG’s attack from the outside, but it has plenty problems of its own making to deal with, too.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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