New Media stock dive worry in newspaper tie-up

Asignificantly weakened deal to merge the nation’s two largest newspaper publishers heads to a shareholder vote on Thursday.

And it’s expected to be approved — despite the multitude of concerns that has the proposed acquisition of USA Today publisher Gannett by New Media Investment Group’s GateHouse Media struggling and gasping for air.

Since the cash and stock deal was unveiled on Aug. 5, the biggest single barrier to getting it done has been the fast and furious erosion of New Media stock, which will be used to help pay for Gannett .

The stock’s closing price of $7.13 on Tuesday is well below its pre-deal price of $10.70 a share. The plunge has lowered the value of the offer from the original $1.4 billion to just over $1.1 billion.

Gannett shares closed at $10.04, up 19 cents on the day, but down 6.5 percent from their $10.75-a-share price on Aug. 2.

Adding to the merger’s woes, the NewsGuild, which represents workers at a number of papers from both companies, blasted the deal on Monday, saying it will lead to cuts that will close papers and hurt news coverage.

“This merger will hurt the communities these media organizations serve,” said NewsGuild President Bernie Lunzer. “To fund the merger, local papers will likely disappear, jobs will be slashed and journalism will suffer.”

There are also outstanding regulator concerns over the financing by private equity firm Apollo Global Management, as The Post has previously reported.

Despite the complex web of complications, most media observers think the big institutional shareholders will OK the deal Thursday, noting that they share many of the same investors and that they are being promised cost savings of $300 million.

“I already voted,” Omega Advisors’ Leon Cooperman told Media Ink on Monday of his 9.9 percent of the New Media stock.

Another source speculated that short sellers are buying and will vote for the deal, with the idea that the stock will continue to decline after the deal closes.

Michael Reed, the Fortress executive who has been overseeing New Media as its chairman and CEO, was bullish in his last earnings call, saying that while revenue at both companies has been declining, the combined company will be less reliant on dwindling revenues from its print publications.

“In the combined company over the next three years, print advertising is projected to go from over 30 percent to less than 15 percent of the total revenue,” Reed said of the company’s plan to profit more from digital ads.

In what appeared to be a vote of confidence in himself, Reed then snapped up 250,000 shares of New Media — worth $2.2 million at an average share price of $9.78 — on Oct. 30, according to SEC documents.

Two other New Media directors also invested that day: Laurence Tarica bought 30,000 shares at an average price of $8.74, or about $262,200, and Kevin Sheehan bought 15,000 shares at an average price of $8.76, for a total of $131,400.

The nearly $2.6 million in stock purchases are now underwater, but it does show that the New Media board believes in long-term prospects.

In another bizarre twist that should have scuttled the deal, Omega’s Cooperman cast doubt on the company’s merger projections during a New Media earnings call late last month. “I hope they’re right,” he said, referring to the merger projections. “Nobody believes the numbers.”

“People are skeptical. Rightly so. Rightly so,” Cooperman then told the Boston Business Journal before then telling Media Ink he votedd for the deal. When asked whether he himself believes Reed’s revenue projections, he said, “Well, no.”

During the call, Cooperman also blasted Fortress for the “hundreds of millions” in management fees it will walk away with. “It’s just morally wrong,” he said.

Cooperman isn’t the only potential holdout to fall in line to support the deal. Heath Freeman is the head of Alden Global Capital, whose MNG Media had its $12-a-share takeover offer for Gannett rejected in January.

Despite the stinging rejection of its hostile takeover bid, MNG, which owns 8.5 percent of New Media, said on Oct. 31 that it would support the merger with Gannett.

Apollo will be supplying nearly $1.8 billion in secured loans to New Media at the sky-high interest rate of 11.5 percent to do the deal, which initially drew the attention of the FCC. While the FCC doesn’t ordinarily weigh in on newspaper deals, a federal appeals court in Philadelphia had reinstated the old duopoly regulations that bar the same corporate owner from owning a TV station and a daily newspaper in the same markket. That put the FCC into the mix on the newspaper deal since Apollo is in the process of buying majority control of the Cox Media Group, which owns 13 TV stations as well as three newspapers and radio stations in Ohio. Apollo was summoned to Washington, DC, to explain its way around the duopoly clause.

And one source said it was able to make some alterations to its loan guarantees, which satisfied the FCC.

On Oct. 24, an FCC spokesman said that “both transactions were under review by the commission.”

As of Tuesday, the spokesman only said the Cox-Apollo deal was under review.