GateHouse, Gannett merge as the newspaper industry’s consolidation escalates

The consolidation of the newspaper industry accelerated with the pending merger of GateHouse and Gannett.

This deal, when completed within four to six months, will lead to a massive reduction in management and administrative personnel of the combined companies. The goal is to cut $275 million to $300 million in costs within two years.

There will likely be further consolidation of printing operations and more sales of printing presses and newspaper buildings. The already consolidated editing functions at GateHouse and Gannett could merge, as will the digital operations.

And, yes, impacted newspapers will become even leaner as print revenues decline and the new company expedites its digital transformation. The UMG represents employees at four GateHouse newspapers in Illinois, the Peoria Journal Star, the Pekin Daily Times, the State Journal-Register and the Rockford Register Star.

The good news is this: New Media Investment Group, GateHouse’s parent company, is driving the merger. And New Media seems intent on staying in the business for a while, unlike some of the vulture capitalists entering this struggling industry.

So there’s that.

The United Media Guild has tracked New Media and GateHouse quite closely over the years. GateHouse operates UMG-represented newspapers in Peoria, Pekin, Springfield and Rockford.

After GateHouse Media went bankrupt in the face of $1 billion in debt, Fortress Investment Group relaunched it as part of the larger New Media company — a new Permanent Capital Vehicle it guided as external manager. Fortress has collected huge management fees and incentives along the way, including more than $20 million in 2018 alone.

Previously Fortress co-CEO Wes Edens was chairman of the New Media board. UMG’s successful shareholder proposal — and the investor outreach that came with it — triggered a vote of no-confidence for Edens and other New Media board members.

Reed replaced Edens as chairman, addressing UMG’s concerns that the board was more interested in serving the interests of Fortress than New Media.

This investor outreach and the threat of a corporate campaign by The NewsGuild against New Media led to joint bargaining for TNG locals, a global economic agreement, the end of a years-long wage freeze at GateHouse newspapers and a more constructive labor/management environment overall.

As part of this merger with Gannett, Fortress will be phased out as external manager. Apollo Global Management will finance the merger instead.

But the business model will look the same to our members in Illinois. The new Gannett will maximize cash flow to pay down the debt, pay hefty dividends to investors and reinvest in the business.

New Media CEO and board chairman Mike Reed will be CEO and board chairman of the new company. Both the New Media and GateHouse names will go away and the new company will operate as Gannett.

The new operating subsidiary will be run by Paul Bascobert, the newly selected CEO of Gannett. Gannett Chief Financial Officer Alison Engel will be CFO of the new company.

New Media will get five members on the expanded board and Gannett will get three.

Reed approached Gannett about merging while Gannett was fighting off a hostile takeover bid from the vultures from Alden/Digital First Media. During a conference call for investors, Gannett board chairman J. Jeffry Louis said the merger was “not a pressing need” but noted that Gannett had been willing to listen to offers.

Louis said New Media was a good cultural fit and had credible financing, so negotiations gained traction. Gannett continued its CEO search while in discussions with Reed. Louis called the merger “a wonderful aligning of the stars for us” and praised Bascobert’s potential as the CEO of the new operating company.

Corporate headquarters will be in McLean, Va., but it sounds like Reed could still operate out of suburban Rochester.

Once this juggernaut starts rolling, it would not be surprising to see the new Gannett look to purchase other chains. A dissident Lee Enterprises shareholder approached Reed about making a bid for the Post-Dispatch’s parent company, Lee Enterprises, but Reed noted the Lee wasn’t for sale and that he doesn’t do hostile takeovers.

But if another vulture capitalist comes after Lee, Reed and Co. could offer a friendlier alternative. And the consolidation would continue.