Unidentified bidder offers to buy The Morning Call
Proposal of $30 million to $40 million made to Tribune Publishing
An unidentified bidder has offered to buy The Morning Call Media Group for $30 million-$40 million, a proposal that was disclosed in a regulatory filing Tuesday that comes about a month after the Allentown newspaper’s parent company announced it was selling its properties to a hedge fund with a reputation for cost-cutting.
The filing discloses the interested entity as only “Bidder C,” noting that Tribune Publishing received the offer for The Morning Call on March 10.
Earlier in the filing, Tribune noted that its financial adviser on Jan. 25 had spoken to Bidder C, “who had contacted the company in the past about a potential acquisition of certain
of the company’s business units, and renewed his inquiries” after news broke on New Year’s Eve that hedge fund Alden Global Capital had submitted a proposal to acquire Tribune. But Bidder C did not submit a proposal at that time, the filing notes.
Tribune on Feb. 16 announced that it agreed to be acquired by Alden, its largest shareholder, in a deal in which the hedge fund would pay $17.25 a share for the 68% of Tribune stock it didn’t already own. With that in mind, Bidder C’s proposal was sent along to Alden.
“The company is restricted by the merger agreement from pursuing these indications of interest, and has referred all such inquiries to Alden,” Tribune said in the filing Tuesday with the U.S. Securities and Exchange Commission.
Alden, which could complete its acquisition of Tribune in the second quarter, pending approvals, did not respond to a request seeking comment. A spokesperson for Tribune’s special committee declined to comment beyond the filing.
The disclosure is the latest plot twist for Tribune, a company that has been in flux for several years as rumors of a sale swirled. The filing notes Tribune has engaged financial advisory firm Lazard since May 2018 to evaluate offers. Alden, for its part, has been trying to acquire Tribune since fall 2019, though now a hotel magnate in the process of acquiring The Baltimore Sun is working on a competing, and larger, bid to run the newspaper publisher as a nonprofit.
Amid the uncertainty of recent years, nonmanagerial newsroom employees across Tribune’s properties voted to unionize and joined The News Guild, including staffers at the Chicago Tribune, The Virginian-Pilot, the Hartford Courant, Orlando Sentinel, New York Daily News and The Morning Call.
Union employees, including at The Morning Call, have advocated for local ownership committed to investing in operations. While splitting one newspaper property away from a chain, which has centralized many operations and outsourced printing to neighboring states, is difficult to accomplish, experts say it is doable.
Apparently, there is someone out there willing to try.
Seeking local owners
The Morning Call Guild, which represents 36 newsroom employees, has been pushing for local owners for about a year. Its efforts have included conversations with Lehigh Valley business and community leaders “who are civic-minded and recognize the value of a newspaper like The Morning Call,” said Guild Chairperson Peter Hall, a federal courts and justice reporter at the newspaper.
“We’ve had a number of productive conversations with people who indicated an interest in pursuing a purchase of the paper from Tribune, but as far as we know, it hasn’t gone beyond the expression of interest or willingness,” Hall said.
Regarding the identity of Bidder C, Hall said there’s not enough information in the SEC filing for the Guild to “say whether we know who it is or not.”
He said the Guild’s messaging in the Lehigh Valley has focused on Tribune’s ownership, especially since November 2019 when Alden built a 32% stake in the company, as the number of employees has shrunk.
At The Morning Call specifically, a payroll that once numbered more than 1,000 is now less than 100 employees across all functions of the operation.
Looking larger, Tribune had 2,865 employees as of Dec. 27, which was a 30% decrease from a year earlier as a result of the company’s “strategy to flatten its management organization,” according to Tribune’s annual report filed March 8.
“It is truly difficult to watch incredibly hard-working professionals produce a product with constantly diminishing resources,” said Tony Iannelli, president and CEO of the Greater Lehigh Valley Chamber of Commerce. “That’s hard for me to watch.”
That’s why Iannelli is talking with community leaders to possibly put together a bid of their own for The Morning Call. But to this point, Iannelli said, he doesn’t know any local group that has submitted a bid and he isn’t aware of Bidder C’s identity.
“To my knowledge, there are a number of community leaders who have interest, but it’s in its infancy stages,” Iannelli said. “Having said that, the clock is ticking, and any movement has to occur sooner rather than later.”
Seeking to identify Bidder C, The Morning Call reached out to several regional newspaper publishers, but many did not return requests seeking comment.
One that did respond was Steinman Communications, a family-owned operation in Lancaster that owns LNP Media Group, which publishes the LNP daily newspaper, weekly hyperlocal newspapers and specialty publications.
When asked whether Steinman was interested in The Morning Call or involved in the bid, Chairperson and CEO Robert Krasne said the company “does not discuss its business strategies publicly.”
“However, as one of a seemingly ever diminishing number of locally owned news organizations in our region, we are enthusiastic supporters of locally owned news operations and their efforts to combat the scourge of news deserts and ghost newspapers, and the disinformation that fills the voids they create,” Krasne wrote in an email.
Times-Shamrock Communications, which runs several newspapers surrounding the Lehigh Valley, including The Times-Tribune in Scranton, has not had talks with Tribune about The Morning Call, CEO Jim Lewandowski said.
“During my time, I’m not aware of any connection that’s happened and definitely not recently,” said Lewandowski, who joined Times-Shamrock as CFO in 2014.
Breaking up is hard to do
Before agreeing to sell to Alden, Tribune’s board and special committee also considered the possibility of selling the company in pieces, according to the SEC filing.
“Ultimately, a number of considerations made this path both risky and unlikely to lead to higher values, including (i) tax costs related to the divestiture, (ii) large centralized functions which were not scalable as the operation shrunk, (iii) a limited number of strategic buyers with synergies and (iv) contractual liabilities remaining after a series of divestitures,” the filing notes.
Tribune and other newspaper chains have centralized many activities over the years. Typical examples include the use of corporate software licenses and the sale of classified advertising or subscriptions, along with finance, customer service and back-office support. In addition, The Morning Call since early 2018 has been printed in Jersey City, New Jersey, and trucked 85 miles daily to the Lehigh Valley.
So a prospective buyer would have to replicate some of those services so it could operate a newspaper independently, said Jim Friedlich, chief executive of The Lenfest Institute for Journalism, a nonprofit organization that supports local news and owns The Philadelphia Inquirer.
That comes with some transitional pain and cost, he noted, but it’s doable and most of the services can be put in place within the new organization. Such a transaction also would likely lead to a “transition services agreement,” Friedlich noted, a deal that governs the cost and services provided by the seller and can be huge sticking points as it pertains to time frame and price.
“It will be difficult for a local buyer to purchase the Morning Call because Alden is a challenging seller,” Friedlich said. “Like any hedge fund, they are coin-operated. Newspapers like The Morning Call continue to produce meaningful cash flow. A local buyer’s purchase price must compete with the present value of all the future cash that the owner will bank by holding onto the news property and continuing to cut costs. Alden is more a buyer than a seller, and it will take a meaningful premium to get their attention.”
But if it can get done, Friedlich said he’s confident the community would embrace and support an independent Morning Call, especially if it were run as a nonprofit.
Friedlich — who confirmed Lenfest is not involved with Bidder C — said nonprofits are typically managed to break even as compared with hedge fund-owned newspapers that look to return 10%-20% of profit to corporate owners. As those margins become the focus, he said, newsroom staff typically dwindles along with investments in digital product development. Nonprofits also can appeal successfully to their communities for support, Friedlich noted.
Those are major reasons, he said, why The Philadelphia Inquirer is able to maintain a newsroom of more than 200 people.
A competing bid
Tribune’s filing Tuesday, a proxy statement since Alden’s acquisition requires shareholder approval, also provides additional details about a competing bid for the company.
Stewart Bainum Jr., the longtime chairperson of Maryland-based Choice Hotels International, on March 16 sent the Tribune special committee a nonbinding letter offering to acquire the company for $18.50 a share in cash, which would be higher than Alden’s agreed-upon price.
The letter, according to the filing, notes Bainum would commit $100 million of the $650 million required to finance the transaction. To discuss his offer with potential debt and equity financing sources to raise the remaining money, Bainum sought a “waiver of certain restrictions” under a confidentiality agreement. Tribune’s special committee agreed Friday to grant that waiver.
News of Bainum’s bid for the entire company came after The New York Times on March 14 reported that negotiations between Bainum and Alden hit a snag over the hotel magnate’s planned purchase of The Baltimore Sun and related assets for $65 million.
“The March 16 Letter indicated that Mr. Bainum’s pursuit and investigation of The Sun had recently led him to the conclusion that the company could be purchased for a price greater than the price set forth in the merger agreement, and that Mr. Bainum believed there would be significant interest among financing sources in joining his effort,” the filing notes. “The March 16 Letter also alluded to a future for the company and its newspapers potentially under a not-for-profit model.”
In the proxy statement, however, Tribune’s board recommends shareholders vote to approve the Alden acquisition. Among other reasons, the filing notes, the board views the the acquisition by Alden as favorable because it is fully funded with cash and represents a substantial premium.
The deal was approved by Tribune’s board on Feb. 15, and CEO Terry Jimenez was the sole dissenting vote, the filing notes.
Jimenez, the filing mentions, believed the price proposed by Alden was inadequate “due to this greater optimism about the company’s future financial performance.” He considered remaining as a standalone company to be in the best interests of Tribune and its shareholders, the filing notes.
The deal still requires the approval of two-thirds of shareholders not affiliated with Alden and needs to clear other regulatory hurdles before it can be completed.