Shareholders for the country’s two largest newspaper groups on Thursday voted to approve the merger of Gannett Co. and GateHouse Media, opening the next chapter in more than a decade of struggle for Wisconsin’s largest newspaper, the Milwaukee Journal Sentinel, as well as 11 other dailies in the state.
The vote came even as both the stock market and a major investor in GateHouse’s parent company, New Media Investment Group, have thrown cold water on forecasts for the projected earnings of the new company.
New Media CEO Mike Reed, who will assume the same title in the merged company, even as it retains the corporate moniker Gannett, has been promising cost-savings of $275 million to $300 million from the merger. Reed has also said that the merger will cut annual revenue declines by more than half over the next three years: from currently projected 7% to 9% to just 3% to 4%.
In response to those projections, New Media shareholder Leon Cooperman told the Boston Business Journal two weeks ago, “People are skeptical. Rightly so. Rightly so.” When the newspaper asked the billionaire investor whether he believed the public revenue projections for the combined business, Cooperman replied: “Well, no.”
He still said he would vote for the merger, however, “taking a chance” that Reed “knows what he’s talking about.”
But as media business analyst Rick Edmonds pointed out, writing on the Poynter Institute’s website, traders have already cut New Media’s stock price by more than a third since the deal was announced in August. Share prices in the acquiring company were down by 34% on the eve of Thursday’s vote.
The merger announcement produced widespread predictions that further staff cuts are ahead for the new company, which will own about 1 in 6 newspapers across the country. The two predecessor firms have already cut their workforces repeatedly in the last several years.
Besides the Journal Sentinel, Gannett owns daily newspapers in Appleton, Fond du Lac, Green Bay, Manitowoc, Marshfield, Oshkosh, Sheboygan, Stevens Point, Wausau and Wisconsin Rapids. GateHouse owns the Daily Reporter in Milwaukee, which covers construction and development, and the monthly Wisconsin Law Journal.
Under the merger agreement, New Media is buying Gannett for roughly $1.4 billion in cash and stock, financed with a five-year, 11.5% interest loan of $1.8 billion from Apollo Global Management, a private equity firm. The transaction is scheduled to close Tuesday, Nov. 19.
The NewsGuild-CWA, which represents Journal Sentinel newsroom employees, as well as newsroom staffs at a handful of other Gannett and GateHouse papers, issued a paper warning that without a sharp change in course, the merger will hurt journalism.
“The high debt load will exert downward pressure on wages and employment. Consolidation may accelerate news deserts. And Gannett shareholders are likely to lose money,” the union’s paper warns. “The GateHouse purchase of Gannett will weaken newspapers in the communities currently served by the two papers. The combined company will be forced to pay off, at a usurious interest rate, the financing of the deal, which will burden operations afterwards.”