Journal Media faces shareholder resistance in Gannett merger

The CEO of the nation’s largest newspaper chain says two Journal Media Group shareholders are trying to “bully Gannett” into buying the company for a higher price.

Those shareholders have been buying more Journal Media Group stock, posing a hurdle as the company tries to get shareholder approval in March for its merger with Gannett. That merger, announced in October and still needing regulatory approval, would have Gannett paying $12 per share to acquire Journal Media Group, whose largest newspaper is the Milwaukee Journal Sentinel.

That’s already a 44.6 percent premium from Journal Media Group’s closing price on Oct. 7. But two Journal Media Group investors say the company should be more transparent, with one of them arguing the deal doesn’t accurately reflect the company’s real estate properties. Both companies have disputed the shareholders’ claims.

The latest salvo came this week from Gannett CEO and President Robert Dickey, who slammed Water Island Capital LLC and GAMCO Investors, Inc., an investment firm led by the well-known investor Mario Gabelli. Dickey made the comments in a letter to Timothy Stautberg, his counterpart at Journal Media Group.

“We are of the view that the unsupported claims that we have undervalued the company are merely an attempt to bully Gannett into offering additional consideration that exceeds that fair value of the shares,” Dickey wrote. “Let me be clear — we will not offer or consent to any additional consideration to your shareholders.”

If the shareholders decline the offer, Gannett “has a problem on its hands” and would need to find a way to satisfy those opposed to the merger, said Huber Research Managing Director Douglas M. Arthur, a media industry analyst.

Altogether, Water Island Capital and Gabelli’s several firms own about 20 percent of Journal Media Group’s 24 million shares, according to their latest filings with the Securities and Exchange Commission.

In January, Water Island Capital said it bought just enough additional shares to own more than 5 percent of Journal Media Group’s shares; reaching that level of ownership requires an SEC filing. In that filing, the firm called for more transparency and said shareholders “cannot make an informed decision” on the merger without more disclosures from Journal Media Group on the value of its real estate.

Gabelli’s firms, meanwhile, disclosed this week they now own 14.52 percent of the shares and have repeatedly called for more transparency. One of those firms, GAMCO Investors, went further and produced a spreadsheet with their estimation of the market value of each Journal Media Group property.

The total value of the 21 properties is more than $112 million, GAMCO estimated. But the firm says Journal Media Group isn’t releasing figures that would allow them to compare their estimates to the company’s.

Journal Media Group has released the value of one of those properties, telling investors in a proxy statement following the deal’s announcement that its downtown Milwaukee property is worth $5.4 million. That’s much lower than GAMCO’s estimate of $9.9 million, although it’s not clear which is right.

The issue, however, deals with an even larger difference. GAMCO argues that Journal Media Group has $112 million in real estate that should be counted in the deal, with Gabelli himself taking to Twitter to say the deal “ignores Real Estate.”

“Gannett and Journal Media have singularly omitted the real estate appraisals, and it’s unreasonable for us as shareholders to have to do it ourselves without being to compare numbers,” a GAMCO spokesman said.

Journal Media Group, meanwhile, says only the Milwaukee property should be counted.

The other properties, which are located in Wisconsin and eight other states, “would be difficult and costly to reposition for other purposes” and therefore shouldn’t be counted “as a separate, additional component of value,” Journal Media Group Board Chairman Steven J. Smith wrote in a Jan. 4 letter to shareholders.

It’s not an unusual dispute, and several newspaper companies have sold their real estate properties and moved into cheaper ones, said Huber Research’s Arthur. But given the significant premium that Gannett offered for a company “enduring significant pressures on its revenues,” shareholders might be better off taking that deal, he said.

Journal Media Group declined comment beyond its Jan. 4 letter, which notes Gannett offered a higher bid than another unnamed company seeking to buy the chain. Gannett’s $12-per-share offer is also “superior to those of any theoretical alternatives,” Smith wrote.

“Abandoning the merger now to explore the unlikely and highly speculative possibility of receiving more than $12.00 per share would expose the company and its shareholders to additional market, industry and company performance risks,” he wrote. “We do not believe it is in the shareholders’ best interest to do so.”

— By Polo Rocha
WisBusiness.com