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Chesto Means Business

GateHouse-Gannett merger will have ripple effect in Mass.

The Taunton Daily Gazette is one of 15 New England daily newspapers owned by GateHouse Media. One media analyst said he expects any newsroom cuts from the merger will probably represent only a small portion of overall budget parings.
The Taunton Daily Gazette is one of 15 New England daily newspapers owned by GateHouse Media. One media analyst said he expects any newsroom cuts from the merger will probably represent only a small portion of overall budget parings. Steven Senne/Associated Press/File/Associated Press

Say hello to Gannett, everyone. And wave goodbye to GateHouse.

The country’s two largest newspaper publishers consummated their long-rumored courtship on Monday, unveiling plans to merge into one behemoth by the end of the year.

The implications could be significant for New England: GateHouse owns 15 dailies in the six-state region — including the main papers for Worcester, Providence, Portsmouth, N.H., Fall River, Quincy, and Framingham — and dozens of weeklies. (Gannett’s only daily in the region is in Burlington, Vt.)

GateHouse parent New Media Investment Group is acquiring a controlling interest in Gannett, for an estimated $1.4 billion worth of cash and stock. The deal values Gannett’s stock at $12.06 a share, a 12 percent premium to the closing price on Friday. The merged company will keep the Gannett name, the more well-known of the two brands. The headquarters will be Gannett’s home in McLean, Va., and not GateHouse’s outpost near Rochester, N.Y.

How big are we talking? This big: The new company will control more than 260 dailies, across 47 states.

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The stated hope is that by banding together, both groups can better withstand the forces ravaging the news industry — dwindling print ad revenue, tough online competition. Their second-quarter earnings underscore the challenges they face: New Media’s revenue at continuing operations declined 6.9 percent in the past year, while Gannett’s comparable “same store” revenue fell 9.8 percent.

Gannett was essentially forced into play by a hostile takeover bid from Digital First Media (aka MediaNews Group). Gannett executives appeared to be suspicious of Digital First’s financing, and its reputation for extreme cost-cutting under hedge fund owner Alden Global Capital.

New Media chairman Mike Reed then approached Gannett with a friendlier offer. Reed had driven New Media/GateHouse on a shopping spree for the past five years or so, gobbling up more than $1 billion worth of publications. But it wasn’t clear how much longer Reed could keep that game going.

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Reed will chair the new company while a newly hired chief executive, Paul Bascobert, will oversee day-to-day operations. New Media will place six directors on the merged company’s board, including Reed, compared with three from Gannett.

If you live in a community served by a GateHouse paper, you’ve probably noticed that Digital First isn’t the only publisher with tight budgets. Just this year alone in Massachusetts, GateHouse has already completed two waves of job cuts, and consolidated 50 of its community weeklies into 18 more regional papers in June.

More cuts are coming, for sure. Reed promised investors that he’ll wring $275 million to $300 million a year in savings — sorry, “run-rate cost synergies” — or about 7.5 percent of the combined budgets. Ken Doctor, a media analyst who writes for Harvard’s Nieman Lab, says New England probably won’t be hit as hard as other places, such as Ohio and Florida, where both companies have a major presence. And Doctor expects newsroom cuts will probably represent only a small portion, especially considering how much has already been sliced and diced from those budgets over time.

Rick Edmonds, a media business analyst with the nonprofit Poynter Institute, likened the combination to the merger that brought together Kmart and Sears in 2005. This deal doesn’t buy an exemption from the industry’s persistent problems. But the savings could provide an important cushion of time for the merger partners, he says, perhaps to work out new solutions.

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Previous layoffs at GateHouse and Digital First, which acquired the Boston Herald last year, has helped prompt debate at the State House about whether the Legislature should get involved. One bill would establish a 17-member commission with a sweeping charge to look at various aspects of local journalism in the state, especially in underserved communities. Bill sponsor Lori Ehrlich, a representative from Marblehead, says she greets this Gannett-GateHouse megamerger with skepticism. But she also hopes that the added scale might curb the trend of disappearing local news coverage.

Reed promised as much on a conference call with analysts today, calling the merger a unique opportunity to “support quality journalism.”

GateHouse readers have heard this story before. You can’t blame them if they share some of Ehrlich’s skepticism. The name may change, but the problems facing the industry aren’t going away.


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