The Time Is Ripe for a New Owner of the L.A. Times
(Bloomberg View) -- The Los Angeles Times is a mess.
Its publisher, Ross Levinsohn, who joined the paper just five months ago, was placed on leave in mid-January after NPR detailed allegations of sexual harassment and “frat house behavior” at some of his previous jobs. He was the Times’s fifth publisher in five years; it is unclear if he will return, or if the paper’s parent company, Tronc Inc., will have to find yet another publisher.
Its most recent editor, Lewis D’Vorkin, joined in October from Forbes, where his indifference to journalistic standards was a prominent feature of his tenure. On Monday, he was replaced after fomenting so much paranoia and anger in the Times newsroom during his brief stint that the news staff was on the verge of a full-blown revolt.
His replacement, Jim Kirk, another recent hire, had just moved to New York to take over the New York Daily News, which Tronc bought in September. Tronc rushed him back to Los Angeles (where he had been interim editor before D’Vorkin’s hiring) to calm the troops. As the media analyst Ken Doctor noted, this is Kirk’s fourth job since he joined the company in August. A deep bench is not among Tronc’s strengths.
Then there is the parent company. The idiotically named Tronc, which used to be known as the Tribune Co., is the third-largest newspaper publisher in the U.S. It is led by Michael Ferro, who owns 28 percent of the stock but is generally regarded as an industry lightweight. (He made his money in the tech industry.) The most recent spate of stories about him document how Tronc is paying Merrick Ventures LLC, which has no connection to the news business, $5 million a year in “consulting fees.” Merrick is owned by Ferro.
But I digress.
The Los Angeles Times is Tronc’s biggest property, generating around a third of its revenue. But it is hardly the only paper in the chain that is struggling. The Chicago Tribune, the Baltimore Sun, the Orlando Sentinel — they’re all seeing regular drops in circulation and revenue. They all have their share of Tronc-induced problems.
Although Ferro and his minions talk a good digital game — he’s a tech guy, after all! — Tronc is at least a decade behind other publishers in formulating a digital strategy readers will pay for. The latest plan — to create “verticals” with subject-specific content created by uncompensated contributors — seems unlikely to succeed.
Revenue and income have been in a steady decline for years. After spending much of 2016 trying to fight off a takeover bid by Gannett Co., Ferro finally relented and agreed to sell Tronc for around $18.50 a share. Alas, in November, with the numbers for both companies deteriorating, the bankers pulled the plug.
And yet. Take a look at this chart of Tronc’s stock price.
See the big drop in November of 2016? That’s when the Gannett deal fell apart; Tronc’s shares fell from $17 to about $9.50 a share. Six months later, it was still only an $11 stock. But ever since May, even though the news has been unremittingly bad, Tronc’s shares have been inching steadily upward, peaking at $21.27 on January 24. (It is currently just under $21.)
When I asked Daniel Jacome of Sidoti and Co., one of the few Wall Street analysts who still covers Tronc, why the stock was so high, he offered a number of theories. “I think investors are giving them credit,” he said, since the company’s earnings before interest, taxes, depreciation and amortization are not that bad. (Jacome used an unprintable word for “bad.”) It’s the one measure that has been increasing even as revenue, net income and earnings per share have decreased.
Second, he said, Levinsohn had been at an investing conference on Jan. 18 — the same day the news broke about his alleged sexual harassment — and “made some very bullish comments on where they want to go digitally.”
But the most likely reason is that investors, seeing the troubles at the Los Angeles Times — and Tronc’s chronic inability to fix them — are guessing that someone is going to step forward and make an offer for the company.
“Investors are saying that the Los Angeles Times is their diamond, and if someone who wants it comes in and offers a premium over the Gannett offer, they are going to have to take it. There is no way they say no to a $25 a share offer,” Jacome concluded.
I think that’s right, which is why Tronc’s otherwise inexplicably high stock price gives me hope. As I’ve written before, the nation badly needs a revived Los Angeles Times. Los Angeles is America’s second largest city, important culturally, economically and politically. And it’s not just an L.A. issue; the country needs a paper that can offer a West Coast alternative to the perspective offered by the New York Times and the Washington Post.
But it’s never going to happen so long as it’s owned by Tronc, which lacks the talent, the resources, the leadership, the patience and the imagination to produce a great newspaper. Under Ferro, the only thing it knows how to do is cut.
To put it another way, the Los Angeles Times needs what the Washington Post has in Jeff Bezos: a deep-pocketed savior who cares about serious journalism. In 2013, when Bezos bought the Post for $250 million, the Post and the L.A. Times both had dispirited newsrooms that employed about 500 journalists. In the intervening five years, the Post has recaptured its greatness, with an energized newsroom that now numbers 800 journalists. It has a compelling web presence and regularly breaks stories about President Donald Trump. It even reportedly turns a profit. Under Tronc, the Los Angeles Times has continued to shrink, and its newsroom had dwindled to 400 journalists.
One possible buyer, as I’ve mentioned before, is Laurene Powell Jobs, who has invested in several media properties, including Axios and the Atlantic, and clearly cares about journalism. Another might be Steve Ballmer, the former chief executive of Microsoft who, as the owner of the Los Angeles Clippers basketball team, is now invested in the city.
A third possibility is Patrick Soon-Shiong, the billionaire doctor and pharmaceutical entrepreneur who is based in L.A. Soon-Shiong, who owns over 25 percent of Tronc’s stock, first became a shareholder at the behest of Ferro, who was looking for allies to ward off Gannett. Soon-Shiong is no longer in Ferro’s camp, but he is on record as wanting to buy the Times — and he still owns all that stock.
The problem is that Ferro doesn’t want to sell; without the Times, he doesn’t have much of a company. He shut down an earlier attempt by Soon-Shiong to buy the Times, which was the source of their falling-out.
But that shouldn’t be a deal-breaker for anyone who truly wants the paper. Tronc’s current valuation is under $700 million. If you assume that a buyer would offer a premium, it would still cost under $1 billion to buy the company.
For Soon-Shiong it would be considerably less, given the large stake he already owns. Shareholders would undoubtedly press Ferro to take the offer. If a deal were struck, the new buyer could sell off the other papers to other wealthy business people who want to bolster the journalism in their community. That would help get the price for the L.A. Times closer to the $250 million Bezos paid for the Post.
It’s really no secret, except maybe to Ferro, why the Post, the New York Times and the Wall Street Journal are all thriving these days. They have turned to a model that consists of doing great journalism and relying more on subscription revenue than advertising dollars. The Post has more than 1 million paid digital subscribers. The Journal’s subscriptions have risen to around 1.5 million. And the New York Times has well over 2 million digital subscribers. Yes, they’ve all done a fair amount of innovating in the way they present their work on the internet. But it’s the stories themselves that are bringing readers into the tent.
It’s a shame that Tronc doesn’t seem to understand any of this. All indications are that it never will, at least so long as Ferro is running the place. The Los Angeles Times is too important to be a part of this foolishness. It’s time to give someone else a chance to fix it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is the co-author of "Indentured: The Inside Story of the Rebellion Against the NCAA."
In a pathetic attempt to seem hip, the company uses a lower case “t” in its official name. We're not buying it.
D’Vorkin was kicked upstairs; he is now Tronc’s “chief content officer.” It is unclear whether this is a meaningful title, but if it is, watch out.
At Forbes, D’Vorkin built a huge network of contributors, who were paid (meagerly) based on the number of clicks they got.
He has a “buy” on the stock.
To contact the editor responsible for this story: Katy Roberts at kroberts29@bloomberg.net.
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