Which Big Media Properties Could Tronc and Gannett Buy?

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Gannett Co. Inc. (NYSE: GCI) had trouble in an unsuccessful attempt to buy Tronc Inc. (NASDAQ: TRNC), another newspaper chain formerly called Tribune Publishing. Fresh off the M&A battle between the two companies, Tronc is in the midst of an attempt to buy Us Weekly, which has a large footprint of online readers that could enhance both the size and profitability of its online media operations. Each of the companies faces challenges if the purchase of national media properties becomes a major strategic path in the newspaper industry to increase audience size, revenue and earnings.

The purchase of national online media would be in place of the purchase of individual papers or chains. The number of buyout options among newspaper chains and companies with single papers is small. Presumably, the largest newspaper companies in the market to buy these businesses have talked to McClatchy Co. (NYSE: MNI), which owns papers in large markets like Fort Worth, Miami, Kansas City and Charlotte. For last year, McClatchy posted revenue of $568 million and a net loss of $34 million. Interest expense cost the company $84 million, which is at the core of McClatchy’s problem. The company has long-term debt of $829 million and pension and post-retirement obligations of $604 million. A buyer would be wary to take over these portions of the balance sheet, even at a discount.

Another large chain is Digital First Media, which owns the Denver Post, San Jose Mercury News and New Haven Register, among others. The owner, private equity firm Alden Global Capital, has explored sales but now seems content to take as much cash as it can out of the company.

Two other chains with private owners that have shown no interest in a sale are Hearst and Advance Publications. Hearst owns the San Francisco Chronicle, Houston Chronicle and Seattle Post, among others. Advance Publications owns the New Orleans Times-Picayune, Newark Star Ledger and Cleveland Plain Dealer. Hearst and Advance are controlled by families that have owned them for decades and by every appearance are long-term holders.

Several other large papers are owned by local billionaires and not likely for sale. This includes papers in Las Vegas, Salt Lake, Boston and Washington. The Dallas Morning News, on the other hand, is owned by A.H. Belo Corp. (NYSE: AHC) and has a market capitalization of $136 million. That means a successful bid almost certainly would have to be above $200 million, and its shares also are controlled by a limited number of stock holders.

The lack of large newspapers and chains for sale contributes to the strategy behind the Us Weekly acquisition by Tronc. It is apparent that it will add a large online audience to Tronc’s properties, increase earnings and offer a library of content that can be syndicated among its papers, which include the Los Angeles Times and Chicago Tribune.

Most large national new media companies are worth far too much to be newspaper chain targets. Vox, which owns sports site SB Nation, The Verge and Recode, has a valuation put as high as $850 million. Another online only operation, BuzzFeed, carries a valuation of $1.5 billion. The largest traditional magazine publishers, which include Time Inc. (NYSE: TIME) and the Conde Nast portion of Advance Publishing, also would have price tags above $1 billion. That leaves newspaper chains with a limited market of what are likely to be single properties or smaller media companies.

Gannett already has a huge national media property in USA Today. Gannett initially believed it had the capacity to pay above $700 million for Tronc to add to an already formidable chain. Because the deal did not close, there is no telling if Gannett could raise that sum, even for a financially more attractive target than Tronc. Tronc, on the other hand, has $195 million on its balance sheet. However, that sum will drop below $100 million if the rumored price for Us Weekly is correct and Tronc can close a buyout.

The national media properties that might fit with Gannett or Tronc include Refinery29, a collection of women’s sites that claims to have 27 million unique visitors. The list also might include American Media, which owns Men’s Fitness, The Star and OK! It claims 50 million unique visitors. American Media has had debt and earnings problems. Its value has been pegged below $500 million, but the fate of the debt isn’t clear. Privately held Rodale, run by Maria Rodale, owns Men’s Health, Women’s Health and Prevention. Rodale’s revenue has been falling, so it may be a less than desirable target. However, among its properties it has tens of millions of unique visitors and hundreds of thousands of paid print subscribers.

What is clear is that if a large newspaper chain wants to buy national media, mainstream properties and hot new media are too expensive. That leaves a few, large, national, niche media businesses.