Summary
- Bloodletting is largely discredited as a way of curing the sick. Yet some regional newspaper operators are still giving it a shot.
- New Media Investment wants to pay $1.4 billion in cash and shares for Gannett.
- Since the end of May, the two companies' combined market capitalizations have only increased by roughly $300 million.
Bloodletting is largely discredited as a way of curing the sick. Yet some regional newspaper operators are still giving it a shot. New Media Investment (NYSE:NEWM) wants to pay $1.4 billion in cash and shares for Gannett (NYSE:GCI), making the biggest publisher of local papers in the United States. As treatments go, it looks expensive and probably ineffective.
New Media, which is run by SoftBank (OTCPK:SFTBY)-owned Fortress Investment, is offering a stated premium of more than 50% to Gannett's closing price on May 30 when news of the merger first appeared. To justify that, it has touted up to $300 million in annual cost savings. Taxed and capitalized, those could tot up to $2.6 billion.
The market isn't pricing in anything like that. Since the end of May, the two companies' combined market capitalizations have only increased by roughly $300 million. True, the targeted costs seem within reason, at about 10% of Gannett's operating expenses last year.
But the USA Today publisher is already the Freddy Krueger of newsroom slashing. Gannett's U.S. workforce has fallen by a fifth over two years, yet subscription revenue for the whole group, which also owns some titles outside of the United States, has fallen 6% during the same period. Larding on nearly $2 billion in debt to finance the deal - with an onerous 11.5% interest rate - would be risky even in better times.
