Gannett's (GCI) - Get Report  $864 million hostile effort to acquire Tribune Publishing  (TPUB) received a second consecutive blow after an influential proxy advisory firm urged institutional investors not to support the USA Today publisher's "just vote no" campaign against the Chicago-based media company's directors.

The recommendation, which was made by Glass Lewis, in a report obtained by The Deal late Tuesday, is in response to a campaign launched by Gannett on May 2 urging shareholders to oppose Tribune Publishing's eight incumbent director candidates in an uncontested election. 

The vote on the directors, which is scheduled to take place at Tribune Publishing's June 2 annual meeting, will have no binding impact on the company's management or board. However, a large negative vote against Tribune Publishing's directors would send a strong message that shareholders want the two sides to engage in discussions about a combination. The effort could also backfire -- a weak vote of opposition would show the opposite is true.

In that environment, Glass Lewis waded into the debate with a report charging that Gannett has offered "insufficient cause for investors" to support its current campaign and that Tribune Publishing's board "is well positioned to fully evaluate and reject any bids that seem particularly opportunistic."

Its recommendation comes on the heels of a similar report issued Monday by the other major proxy advisory firm, Institutional Shareholder Services. 

The recommendations of the two proxy advisory firms carry a lot of weight with institutional investors, many of which have their own internal vote review committees that also take into account the firm's outside analysis.

ISS's recommendation against Gannett's campaign noted that the publisher didn't make a tender offer to acquire Tribune Publishing nor did it offer up any dissident director candidates. However, the deadline to nominate a dissident slate of directors had already passed by the time Gannett made its unsolicited bid.

The recommendations also come after Tribune Publishing's board, as expected, on Monday rejected Gannett's latest bid, which was increased to $864 million from $815 million and represents a 99% premium to the unaffected closing price the day before the media giant made its first bid. However, ISS suggested that based on its analysis that the revised bid still "materially underrepresented the intrinsic value of the company" and that "given these considerations" it appears that Tribune Publishing's response "appears to have been appropriate." 

In addition, Tribune also said Monday it was inviting Gannett to agree to a mutual non-disclosure agreement - which means both companies could examine the other's books. However, according to people familiar with the situation the offer is a non-starter for Gannett because it would essentially set in place a review period that would force it to cancel the "just vote no" campaign.

At least one major investor is likely to support talks between Gannett and Tribune Publishing. Asset manager Oaktree Capital Group on May 6 reported in an activist securities filing that it was urging the media company to "pursue discussions" with Gannett, which owns over 100 newspapers, to see if an acceptable agreement can be reached between the two media companies.

Oaktree owns a 15% Tribune Publishing stake and on Monday it submitted a securities filing including a letter it sent to the company Friday saying it should establish an independent committee with advisers to consider Gannett's proposal.

Nevertheless, the ISS and Glass Lewis recommendations could have more sway with other Tribune Publishing institutional investors, such as BlackRock, Vanguard or State Street (STT) - Get Report, which all own significant stakes in the company. A vote for Tribune Publishing's incumbent directors by these investors could weaken Gannett's campaign and unravel its acquisition efforts down the road.

In addition, recent moves by Tribune Publishing could pose a significant complication to a possible deal. Michael Ferro, Tribune Publishing's executive chairman, acquired a 16% stake in Tribune Publishing about three months ago for roughly $8.50 a share at a slight discount to the media company's share closing price a day prior to the announcement of the deal, according to Gannett. Also, Tribune Publishing said Monday that it received a $70.5 million capital investment from Nant Capital LLC in exchange for a 12.9% stake in Tribune Publishing. Nant's founder will also receive a seat on Tribune Publishing's board. 

Gannett on Monday noted that the latest share issuance, coupled with Ferro's stake represents an ownership position of roughly 30%. That sale suggests that Tribune Publishing is building a blocking stake in opposition to the Gannett offer. However, people familiar with the situation note that the Nant stake cannot be voted at the meeting for or against Tribune Publishing's directors because it was acquired after the record date set by Tribune Publishing for the annual meeting. Nevertheless, some academics believe that Gannett's strategy could encourage a shareholder lawsuit. 

Tribune Publishing is the publisher of a variety of publications including the Chicago Tribune and the Los Angeles Times