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As Tribune Publishing agrees to sell to Alden, Dr Patrick Soon-Shiong has absolute veto on a deal

Update: The Chicago Tribune reported Tuesday evening that Tribune Publishing has “agreed to be acquired by Alden Global Capital in a deal valued at $ 630 million.” Additionally, the Tribune and the Baltimore Sun reported that the Sun, along with a handful of other Baltimore-area weeklies and magazines, would be sold to a Baltimore nonprofit. The Tribune reported that the deal “requires the approval of two-thirds of shareholders not affiliated with Alden and must pass a regulatory review” and must also be approved by Soon-Shiong, as we reported here.

“Alden Global Capital’s drive to gain full control of Tribune Publishing is advancing every day. The hedge fund, known for its cost reduction, is now in active negotiations with a special committee of independent directors established by Tribune Publishing to review Alden’s December offer to buy the company.

An agreement in principle could be reached in the next few days, next week or next month.

However, this cannot be done without the agreement of Dr Patrick Soon-Shiong, owner of the Los Angeles Times. In essence, he has a right of veto.

Soon-Shiong, a typical billionaire owner who stepped into the game to acquire and revitalize his hometown newspaper, now must also determine the fate of the largest and most important regional newspaper company remaining in the market.

He can simply choose to go for the highest price – using his leverage to get a big raise from the $ 14.25 per share offered in Alden’s initial offering.

Or it could instead consider preserving journalism that Tribune Publishing media like the Chicago Tribune, the Baltimore Sun, and the New York Daily News do and do well.

An educated guess:

Soon-Shiong, a doctor who made his fortune as a biotechnology entrepreneur, has his hands full with the Los Angeles Times. He bought it and The San Diego Union-Tribune from Tribune Publishing in June 2018 for $ 500 million.

Over the past two and a half years, he has lost a lot more money than he expected. Lots of work including finding a new editor, leftovers.

I would bet that coming out with a good ROI will be Soon-Shiong’s main or only goal.

Here is a brief explanation of how the rules for making or rejecting the merger offer (set by the parties, not by law) were drafted in such a way as to give Soon-Shiong this outsized role. Three sources familiar with how these deals generally play out, and with this one in particular, confirmed my point in the interviews:

  • Alden already had a 32% stake in Tribune Publishing, most of which was bought from former chairman Michael Ferro at the end of 2019. Thus, his offer, announced at the end of 2020, technically covers the remaining 68%.
  • For a transaction to be completed, Alden must agree to the terms of a special committee made up of the three independent members of Tribune Publishing’s board of directors. Alden controls three more seats, after placing founder Randall Smith on the board last year. CEO Terry Jimenez is a seventh member.
  • If the special committee approves, the proposed transaction would then be put to the vote of the 68% of shareholders not affiliated with Alden. (Alden’s 32% is set aside in this ratification process.)
  • Two-thirds approval by non-Alden owners is required. This represents 45.2% of all shares.
  • Soon-Shiong holds 24%, the other 44%. Without at least some of its stock, Alden and Tribune Publishing would therefore be just below the 45.2% they need to move forward.

Alden’s initial offer has been on the table for almost two months now. Neither side has publicly charged with the move.

However, as I discovered after covering New Media Investment Group’s successful six-month campaign to acquire Gannett in 2019 (New Media’s GateHouse newspaper chain took the name Gannett), dozens of meetings can have held in private, even if everything seems calm from the outside.

In the Gannett merger, detailed back and forth behind the scenes was eventually offered in a prospectus required from the Securities and Exchange Commission which ran to 384 pages.

Alden did not offer a generous premium (11% at the close of the last trading day) with its bid of $ 14.25 per share. Then the stocks quickly started trading at a higher price. It rose further after the Wall Street Journal update last Thursday, closing Friday at $ 15.95 per share.

Wall Street thus shows the confidence that there will be a deal and at a higher price, probably from Alden, but perhaps from another investor who decides to go out with a competing offer.

Alden cleverly closed down on Tribune Publishing, gradually, step by step. Newsrooms and other parts of the organizations have already suffered numerous cuts over the past 18 months, a sign of Alden’s influence.

Tribune newspapers have also been selling real estate and outsourcing printing at an accelerated pace. Seasoned CEO Timothy Knight and two senior executives from the Chicago Tribune flagship left early last year. CFO Jimenez then moved on to CEO.

Tribune Publishing’s three independent directors come from financial backgrounds, as do Alden’s three directors. No one at the top has journalism or publishing experience.

Even though it’s all about the money now, a direct path to a takeover of Alden is not assured.

Some possible variations are in the mix. For example, two foundations in Baltimore and a wealthy businessman from Maryland have separately expressed interest in buying “certain assets,” as Alden noted in his December filing with the SEC. This suggests that The Baltimore Sun could be detached from the others at a bounty that would enrich Alden, Tribune Publishing, and Soon-Shiong.

Or Alden’s effort could collapse – disagree. The bottom balanced and failed in a previous takeover bid for Gannett.

Yet the simplest outcome seems the most likely.

Before the December offer, when I first broached the subject of the role of Soon-Shiong last June, my thesis was similar. The calculation was less complicated. Put Alden’s 32% with his 24% and presto, Alden has majority control.

Seek that to happen. Search all or nearly all Tribune properties to join Alden’s MediaNews Group family – formerly also widely known as Digital First Media – by the end of the year. These operations include The Denver Post, The Orange County Register, Boston Herald, and daily newspaper groups in metro Los Angeles and San Francisco.

Then search for Alden to execute his new conquests the same way he has his old ones.

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