Gannett Share Price Shows Doubts About New Tronc Bid

March 25, 2017 by Douglas A. McIntyre

Gannett Co. Inc.’s (NYSE: GCI) share price has stayed relatively steady since a battle broke out between the two largest shareholders of Tronc Inc. (NASDAQ: TRNC), which Gannett tried to buy last year. Simultaneously, the trading level of Tronc’s shares has been very low, an¬†indication investors have not moved into the stock in the anticipation of an offer well above the current trading price, which is just below $14.

Wall Street punished Gannett for its offer last year, primarily because many experts believed the price was too steep. The offer was apparently for more than $18, along with the assumption of Tronc’s debt. Gannett’s shares traded for nearly $18 last April. They dropped to $7.30 in November. While part of the drop may have been due to weak earnings, the main trigger was Gannett’s months-long pursuit of the smaller newspaper chain.

Presumably, investors would sell Gannett’s shares down at least modestly in the face of fear about a new offer for Tronc. And suspicions about a move would trigger a spike in Gannett’s volume. Instead, volume has been very modest. On Friday, only 837,000 Gannett shares changed hands. The average volume is 1.2 million shares a day. Incidentally, Tronc traded only 76,000 shares Friday, against its average of 114,000.

Gannett may have a reason to stay away from a Tronc bid that is beyond concern about its share price. The dispute that has broken out between Chairman Michael Ferro and departing Vice Chairman Patrick Soon-Shiong (who has a net worth of $8 billion, according to Forbes) involves several chess moves so far. Ferro forced Soon-Shiong off the board. Soon-Shiong’s Nant Capital increased its share of the company to 24.0%, just below Ferro’s 24.9%. Tronc then bought out large shareholder Oaktree Capital for a $15 a share (3.75 million shares in all), a substantial premium with a commitment to a higher price later if Tronc was sold for over the $15. Ferro then got the Tronc board to lift the maximum percentage of the company any single entity could own from 25% to 30%. Soon-Shiong questioned why Ferro should receive the privilege.

For any outsider to step into a melee, the outcome of which is very uncertain, carries risks beyond the future of Tronc’s earnings. Gannett’s share price is steady, a sign that its current plans, which have not publicly included Tronc for months, are unlikely to change, at least in the opinion of many outsiders.