Tribune Publishing (TPUB) Chairman Michael Ferro is either angling for a long, protracted war with Gannett (GCI) - Get Report , or simply trying to extract an even higher takeover price for the publisher of the Los Angeles Times and Chicago Tribune.
Ferro told Times staff members on Tuesday that Tribune Publishing isn't selling to Gannett. To further demonstrate his resolve, Ferro said he's going to reverse the tables by making his own bid to buy the publisher of USA Today and 100 other daily newspapers, according to Politico Media. Ferro, who became Tribune's largest shareholder in February, has reportedly hired lawyers to prepare a bid to buy the rival publisher.
Ferro's comments came a day after Gannett raised its offer price for Tribune to $15 a share from $12.25 a share, increasing the cash-and debt-value of the potential takeover to $864 million from $815 million. The new offer is a 99% premium to Tribune's $7.52 closing price the day before the initial offer was made public.
While Tribune Publishing's board 4 formally rejected Gannett's $12.25 offer on May 4, the company on Friday said it is "reviewing" the increased offer of $15 a share.
Eager to break Ferro's apparent intransigence, Gannett on Friday sought to heighten pressure on Tribune Publishing's board with a letter sent to shareholders asking that they abstain rather than support a slate of eight board nominees to be considered at the company's June 2 shareholder meeting in Chicago. Ferro backs off eight nominees.
In the letter, Gannett said it asked investors for a second time to "withhold" votes for board nominees "to send a clear and coordinated message to their Board that they expect superior and certain value for their shares and that the Tribune Board should substantively engage immediately with Gannett."
Later in the day, Tribune responded in kind, charging in a statement that Gannett was "misleading investors with half-truths and conjecture designed to mask their desperate need to acquire Tribune Publishing to save their own business and their positions." Nonetheless, Tribune left open the possibility that a deal could still be struck.
"As he has stated repeatedly in public, Mr. Ferro indicated that Gannett's previous proposal, while certainly in the best interests of Gannett shareholders, was not in the best interest of Tribune shareholders," the statement read. "We are prepared to engage regarding any reasonable proposal that delivers value for our shareholders, but we will not succumb to hostile tactics designed to steal the Company from our shareholders."
Putting grease on an already ignited fire, the Gannett letter further charged that Ferro is acting in his "own self-interest" rather than its shareholders. Gannett said that in a May 12 conversation with its chairman, John Jeffrey Louis, and CEO Robert Dickey, Ferro said he would agree to a sale provided that he would have a "significant role" in the merged company and become its "largest shareholder."
Tribune countered that "Mr. Ferro's alleged comments in the May 12 meeting were grossly mischaracterized and taken out of context."
Shares of Chicago-based Tribune Publishing, which has been steadily losing print revenue since emerging from a torturous four-year bankruptcy process at the end of 2012, were rising 1.4% to $14.15 on Friday.
Gannett's allegation regarding Ferro's conduct raises the specter of a possible lawsuit based on an allegation that Ferro has been acting out of personal gain. Yet Tribune's board doesn't have to sell to Gannett, provided it can demonstrate that it has formulated a good-faith plan to increase shareholder value, said Lee Charles, an attorney in the mergers and acquisitions practice at Baker Botts specializing in the media sector.
"There's no general fiduciary duty to negotiate with third parties or sell a company simply because somebody offers a premium," Charles said in a phone interview in New York. "Of course, that's provided that the board makes a good faith determination that the company's long range plan offers a better financial reward for shareholders."
Tribune CEO Justin Dearborn told investors in a conference call that his management team has a plan in place to increase revenue through "artificial intelligence" technologies designed at extracting increased advertising sales.
"The board can say we have a long range plan," Lee said, adding that the "business judgement rule" of Delaware law generally defers to the decision-making process of a company's board. "And they have every right to do that."
For that reason, Gannett appears to be counting on shareholder pressure rather than court action.
Oaktree Capital Management, Tribune's second-largest shareholder behind Ferro, jumped into the fray on Wednesday when it challenged the publisher's strategy, known as Tronc, to increase advertising revenue.
"The ideas we have heard appear to be preliminary and involve great execution risk," Oaktree Chairman John B. Frank said in a letter made public in a corporate filing. "We have not seen anything to give us any confidence that Tribune on its own, with the resources and competitive position it has today, can achieve over any reasonable period of time the value for shareholders that we believe can likely be achieved through a transaction with Gannett."
Ferro may beg to differ.