Jan 14, 2019 - Economy

Digital First Media proposes buyout of local media company Gannett

Gannett headquarters in Tysons Corner, Va. Photo: Mark Wilson/Getty Images

A hedge fund-owned newspaper holding group is making a play to buy Gannett, one of the largest local news companies in America and home to titles like USA Today, The Arizona Republic and The Indianapolis Star.

Why it matters: Digital First Media doesn't have a stellar reputation for maintaining the cultures and values of struggling local news companies it buys up. Instead, it's known for cutting staff and outsourcing local news-gathering to digital operations in major cities.

Background: MNG Enterprises, known commonly as Digital First Media, is owned mostly by a New York-based hedge fund called Alden Global Capital, which often buys up distressed newspapers and restructures them to slash costs and drive profits.

  • It owns roughly 200 newspapers, including The Denver Post and The Boston Herald, and has come under fire for major layoffs at both papers, including what have been called "dehumanizing" cost-cutting strategies in Boston.

Details: The Board of Directors of Digital First Media sent a letter to Gannett’s Board of Directors Monday requesting that it take action to immediately evaluate its offer for the local newspaper company for $12.00 per share in cash, a 23% premium over Gannett's current trading price of $9.75.

  • The letter asks Gannett's board to hire an investment bank to "conduct a review of strategic alternatives," including a potential sale, stop making digital acquisitions, and commit to a "feasible, strategic and financial path forward" before hiring a new CEO. (Gannett CEO Robert Dickey is slated to retire this spring.)

Between the lines: Gannett's stock has struggled since the company spun off its local broadcasting arm (TEGNA) in 2015, although it's experienced gains over the past few months, presumably amid buyout anticipation.

  • But the newspaper business continues to be stressful for stakeholders, as fewer consumers indicate a willingness to pay for print, which impacts both subscription and print advertising revenues.

The big picture: A study released in October by the University of North Carolina’s School of Media and Journalism shows a stark decline of newspapers in rural areas. And while digital websites are trying to fill the gap, they often don't have the same journalism resources as the former newspaper.

  • Another study from Duke University’s DeWitt Wallace Center for Media & Democracy last year found that only 17% of news stories in a community are actually local, meaning they're actually about or having taken place within a municipality. 

The bottom line: Experts fear that these types of major acquisitions this could take a big toll on the quality of local news in the U.S.

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