It looks like Gannett will be bought by GateHouse – making a newspaper megachain that the US has never seen "Nieman Journalism Lab

The deal is not finished yet. But I am told by several sources that there are no major stumbles left to negotiate in a megamore between the US's two largest newspaper chains – Gannett and GateHouse. It is increasingly likely to happen, with a message about the end of summer. It is in spite of absolute public silence from the companies involved.

A combined Gannett and GateHouse would create a super-chain that owned and operated more than one-sixth of all the daily newspapers in the country – a prospect I first reported in mid-May. The merged company would control 265 diaries with a combined daily print circulation of about 8.7 million. The next largest newspaper chain in the pressure circulation is McClatchy, well behind at around 1.7 million.

Leaders from Gannett and GateHouse (and their bankers) continue to put the deal together. The difficult issues have been played out, as the company's shareholders will get the majority of the new company; so have many soft problems, as a cultural fit between the leaders of both companies. During the months they've spoken, the comfort level has grown, I'm told, and that's what increases the chances of an announcement in the near future.

Does it call the only agreement that can be made in this environment by declining newspaper companies. Their managers have spent the last few years – in 2019, in particular – outlining almost every possible business excuse, all in a quest for enough cost savings to buy some more time. The scaffolding seems to end with a merger of # 1 and # 2.

Regulatory review will follow the announcement, with the merged company likely to start life in early 2020. And of course it is only when

This is the contract dynamics that come into focus:

• GateHouse, via the parent company New Media Investment Group, would be the acquirer – even though it is the smallest company with market value, cash flow and income.
• NEWM will then own both the GateHouse operating company for its 156 daily newspapers and more than 300 weeks – and Gannett, with 109 diaries and more than 1000 weeks and niche publications. The merged company will then undertake a total mark. It can be Gannett, with longer history and the national USA Today brand. Or it can be a new name altogether. (DO NOT SIGN, it's taken.)
• With investors who today give the revenue a higher majority, the GateHouse shareholders will probably get a majority of the company's shares.
• The Gannett Board, I have learned, is likely to be satisfied with its shareholders receiving a cash payment near the current $ 7.90 closing share price. The premium will be paid in shares.
• Fortress Investment Group, which manages New Media / GateHouse by contract, will play a well-functioning role in the transaction. Currently, Fortress takes an annual administration fee out of the operation. In 2018, it took a total of $ 21.8 million – based on a basic $ 10.7 million management fee and the rest an incentive payment based on GateHouse's net income. Will Fortress continue to play a role in a merged company? Gannett's board is unlikely to feel comfortable with it, and that's one of the issues that still needs to be addressed. According to management's contract, Fortress can be bought out of the agreement. However, it will cost one year's fee, or about another $ 10.7 million (in addition to what it earns for calendar 2019) and an additional buy-out of the incentive fee.

At the same time, Fortress & # 39; marketplace booklet can be integrated to get the deal done at all. That's why several business observers say this can be the only major industrial deal that can make it to the finish line in mid-2019.

Throughout the first six months of what I've called the 2019 Consolidation Games, industry sources have been reminding me (and I has reminded you that getting funding for major newspaper transactions remains clear. Who feels confident in some daily newspaper financial forecasts for 2021, much less 2023? So, Fortress – with its own capital, its financial market status, and its newer Softbank ownership – could get an agreement for financial conclusion where others would stumble.

The logic of the agreements

Thinking is not difficult to understand. This is not about building a digital news juggernaut clear and eager to blow a new chapter in American journalism. Despite the outstanding scale offered, you won't hear any talk about building a "Netflix for news" or a "New York Times for the local."

Simply put, these company's leaders believe that a megamerger buys two or three years – "until we find out." "It" is the long-awaited chimera for successful digital transformation. Gannett and GateHouse, like all their brothers in the industry, are looking at increasingly poorer numbers every quarter; The biggest motivation here is real survival, which in business terms means the ability to maintain some profitability somewhere in the early 2020s.

If the deal is made, the parties will, of course, cite the synergies of the agreement – all real, all likely inflated to some extent, as they are in almost all mergers. Figure the savings can add something like $ 200 million over the next two years, although some set the figure higher.

"Two finance directors, two legal councils, two sets of technology, etc." summed up a knowledgeable observer the goals of this and other attempts at offering. But will it also mean more press releases? Both Gannett and the GateHouse management have made their share of the kiosk cutting, and both realize the damage they cut – and beyond – to the products they are trying to sell to subscribers, print and digital. But they have cut, and they will continue to cut, to get the numbers they think they need to do.

One thing you do not see in this quote above is "two CEO" – a Cost one expects to be halved in a corporate merger like this. There is a curious wrinkle here. Mike Reed is CEO of New Media Investment Group; his long-standing business partner, Kirk Davis, serves as CEO of GateHouse Media. Meanwhile, Gannett currently does not have a CEO and has not since Bob Dickey retired earlier this year. An announcement by the new CEO had worked close to months – just to be delayed. Has Gannett left the hiring, given any of the GateHouse agreement?

"Regionalization" should really be a keyword here. "Local" news will quickly mean "regional" news. Readers in print and digital too often now get "local" news out of places 50 miles away, as long as the daily business parent also owns the news business down the road. And I expect to see a lot more more regionalization out of this merger.

Gannett's fall

It's an agreement here, and then it's the play.

Little GateHouse – historically a small and honest non-journalistic renowned newspaper company – risen from the ashes in the 2013 bankruptcy. As part of the process, Fortress Investment Group found the invention of the New Media Investment Group as a holding company, and GateHouse has been on a takeover ramp since.

CEO Mike Reed, whom I interviewed for Nieman Lab last year, was able to use Fortress's ensemble pools of capital to play the industry's timing well. A disciplined buyer, he found less newspaper owner after less newspaper owner, all of them ready to get out of business as ad fortunes sank deeper and deeper.

The day it came out of bankruptcy less than six years ago, GateHouse had 78 diaries. Today, it has 156, most of any chain.

Too much of this growth, investors asked what they saw in NEWM, which gave a good dividend. GateHouse's own achievement and strategy struck a wall over the past year, but with this merger, Reed apparently pulled a new rabbit out of his hat.

Business is always about timing, and the timing here is fascinating. Gannett has been on his heels since 2016, when trying a hostile takeover of the Tribune, who then Tribune (and soon Tronc) chairman Michael Ferro used to blow Gannett's house backwards. It reached a point of maximum weakness in December, when CEO Robert Dickey announced he was going to retire in May, and it became clear that the company – facing sad finances – had no plans to succeed.

Smelling blood, Alden Global Capital, bids noire, beaten, made a hostile (perhaps even unusually hostile) bid for Gannett at $ 12 per share. Gannett succeeded in resisting Alden push, which apparently concluded when the shareholders voted down Alden's alternative board members in May.

But Alden had pushed Gannett into play, which I reported through the spring. Forced to defend against Alden, Gannett slowly began hiring a CEO and hired Goldman Sachs to explore "strategic options."

With this search – and with the overall logic of consolidation running the entire newspaper industry – came the GateHouse. Over the past few months, the two companies' board members, board, and bankers have found themselves more charmed by the opportunity to put the two companies together.

It is noteworthy that Gannett – the last decade, the clear big dog of the local newspaper industry – is not the acquiring party here. While the board will have an expression in the structure and management of the new company, its status has clearly fallen. The silver lining of the top remaining Gannett leaders, some of which will see this as an excellent time to travel? Contract modifications will provide some very silky golden parachute after a sale is completed.

But remember: This agreement is not yet complete. What can intervene? Financing can still prove impossible to achieve. Alden could come back with a totally cash offer higher than $ 8 – but could it fund it? Can a Gannett / Tribune Marriage – Subject to Multiple Failed Proposals, as recently as last year – occur? Sources say it is unlikely – Ferro remains Tribune's largest shareholder, and he and Gannett have not played well together – but consider it possible .