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CHESTO MEANS BUSINESS

GateHouse-Gannett merger talks underscore shaky state of the industry

The Gannett Co. headquarters sign in McLean, Va.
The Gannett Co. headquarters sign in McLean, Va. Jacquelyn Martin/Associated Press/File 2010/Associated Press

Stop the presses, folks. After surviving an ugly proxy fight, the newspaper giant Gannett’s next steps could be into Massachusetts.

Gannett’s latest would-be merger partner is none other than GateHouse Media, the biggest news chain in this state, led by longtime Massachusetts executive Kirk Davis.

That big reveal came courtesy of The Wall Street Journal, although the story implied Gannett might not be ready to tie the knot with GateHouse just yet. Gannett has been talking to other chains, too, such as Tribune Publishing and McClatchy, about a potential deal.

Newspaper analyst Ken Doctor refers to this industry dance as the “2019 Consolidation Games.” Size and scale, the thinking goes, could provide some measure of safety from the storm that’s savaging the industry.

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Shares in New Media Investment Group, the GateHouse parent, rose 4.7 percent Thursday. Gannett’s stock jumped after the Journal’s story appeared online, but later settled back at a modest 1.6 percent increase after few details emerged. Tribune stock rose 6.6 percent, while the hopeful shareholders in McClatchy shot its stock up 15.4 percent.

Why wouldn’t investors be intrigued? It has been a rough go lately. The seemingly never-ending plunge in print advertising revenue has caused newspaper shares to drop like stones in the past year; advertisers are increasingly choosing Facebook and Google over their local papers. Even after the gains Thursday, Gannett stock was down nearly 30 percent over the last 12 months, while New Media shed more than 45 percent in value.

The hedge fund Alden Global made an unsuccessful run at Gannett, an effort to combine it with Alden’s Digital First Media group, a.k.a. MNG Enterprises (owner of the Boston Herald and Lowell Sun). Gannett shareholders beat back Alden. But once you are in play like that, it’s hard to return to normal.

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So if there is a Gannett-GateHouse deal to be done, who takes control? Gannett’s a bigger company than GateHouse/New Media, based on market value: $888 million versus $445 million.

Doctor sees New Media as the more likely buyer of the two. That’s in part because of New Media’s relationship with Fortress Investment Group, the New York investment powerhouse. Though Fortress no longer owns a controlling stake in New Media, it still essentially runs the business, through a management contract; New Media chief executive Mike Reed is technically a Fortress employee.

Doctor argues that Fortress, which is backed by Japan’s SoftBank, has better access to the capital and debt needed to buy a company the size of Gannett than any of the traditional media players.

Of the potential mergers in the Consolidation Games, Doctor says GateHouse-Gannett “has a decent shot of happening.”

Gannett’s USA Today aside, both chains tend to focus on mid-market dailies and smaller newspapers, he says, and they’re big believers in the regional cluster approach.

Unfortunately for the newsrooms that it controls, GateHouse also has a reputation for cost-cutting.

GateHouse’s latest round took place last week; as many as 200 positions were reportedly severed nationwide. New England newsrooms felt the pain, as newspapers from Portsmouth to Fall River suffered job losses. Providence axed six union positions. Worcester may have been the hardest hit: In that city, eight were gone from the Telegram & Gazette and Worcester Magazine, along with two nonunion jobs. (The magazine’s sole remaining news staffer pleaded “pray for me” on Twitter.)

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Doctor has some good news for the dwindling number of journalists who remain. He envisions some $125 million to $175 million in savings through cuts outside of the newsrooms that could occur over two years through a GateHouse-Gannett combination. That could prevent — or at least delay — more layoffs of editors, photographers, and reporters.

It would probably be a temporary reprieve. Doctor also recognizes this frightening fact: The fundamental pressures facing the industry will, in all likelihood, remain once the dust settles.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.