US publisher MNG Enterprises is continuing to pursue a takeover of rival Gannett – parent company of UK regional publisher Newsquest – after a financial investor backed the company’s ability to carry out the deal.
Gannett, which owns USA Today and some 200 regional US newspapers, rejected an unsolicited offer from the firm last month and has once again insisted it is “well positioned” to grow the company on its own.
MNG, also known as Digital First Media or Media News Group, made a cash offer for Gannett of $12 per share on 14 January after building up a 7.5 per cent stake in the publisher, which bought Newsquest in 1999.
Newsquest is the UK’s second largest regional publisher and has been expanding its portfolio in the past year. It owns the Herald titles in Scotland and the Carlisle News and Star in Cumbria.
Gannett’s board unanimously rejected MNG’s proposal, saying the offer “undervalues Gannett and is not in the best interests of Gannett and its shareholders”, adding that it doubted its credibility.
As of the final quarter of 2018, Gannett reported net debt of $210.7m (£159.9m). Its financial figures for the full-year 2018 show total operating revenues of $2.9bn (£2.2bn) and income before tax of $30.2m (£22.9m).
Asset management firm Oaktree Capital Management has now set out in a letter that it is “highly confident” in MNG’s ability to attain a debt financing package of at least $1.725bn for the deal.
The company said this would enable it to refinance its own existing debts as well as that of Gannett, fully finance the $12 per share cash offer to Gannett’s shareholders, and pay all costs related to the deal.
Joseph Fuchs, MNG’s chairman of the board, said in a statement: “Oaktree is a knowledgeable investor with experience in the newspaper publishing industry, and we are pleased they have confidence in our ability to attain debt financing to acquire Gannett on these terms.
Deal could be finalised ‘within weeks’
“MNG is a profitable newspaper operator with a strong, unlevered balance sheet. The combined company’s leverage profile would be conservative relative to industry comparables.
“It’s time for Gannett’s board of directors to stop blocking value creation opportunities for its shareholders and engage with MNG.”
Fuchs added that MNG is prepared to move quickly and said “if granted the ability to conduct confirmatory due diligence, we can complete our work and finalise a financing package within weeks”.
But, in a statement Gannett claimed Oaktree’s letter “does not represent a contractual commitment or a legal obligation, and is highly conditional”.
It added: “Oaktree Strategic Credit did not indicate that it was confident in its own ability to arrange committed financing or otherwise suggest it would even play a role in the financing, as would be customary in a letter of this kind.”
Gannett went on to display confidence in its own “significant value creation potential in continuing to execute the company’s strategy” without MNG.
“Given Gannett’s operational expertise, our focus on executing our strategic digital transformation and our unwavering commitment to remaining a trusted source of news, Gannett is well positioned to grow the company and its valuable assets to the benefit of Gannett shareholders and the communities we serve,” it said.
Letter ‘does not alter’ Gannett’s view
MNG is owned by New York hedge fund Alden Global Capital. It publishes about 200 newspapers in the US including the Denver Post, Boston Herald and San Jose Mercury News.
It has a reputation in the US for “for cost-cutting and job slashing”, leading to fears for the future of Newsquest titles in the UK if a takeover were to take place – despite reports of dozens of job cuts at Gannett itself already this year.
In its statement, Gannett said that as a public company it would engage with any “bona fide, credible proposal that appropriately values the company and is capable of being closed” as it repeated its belief that MNG’s offer failed that test.
“The letter from Oaktree Strategic Credit does not alter the company’s assessment of MNG’s proposal.”
Picture: Reuters/Larry Downing