Gannett Co., Inc. (NYSE: GCI) today announced that it filed an investor
presentation with the U.S. Securities and Exchange Commission ("SEC") in
connection with its 2019 annual meeting of shareholders to be held on
May 16, 2019.
The investor presentation and other materials regarding the board of
directors' recommendations for the annual meeting are available on the
investor relations page of Gannett's website at https://investors.gannett.com.
Highlights of the presentation include:
Gannett has a detailed strategic plan to position the company for the
digital future and create significant shareholder value
Leveraging nationwide scale and local presence to expand and deepen
relationships with consumers and businesses
Accelerating digital revenue growth through innovative consumer
experiences and new marketing solutions for businesses
Maximizing the value of the company's legacy print business and
rationalizing its cost base
Pursuing accretive growth through disciplined, selective acquisitions
that provide synergies
Gannett is executing its strategic transformation and making
substantial progress
Launched and grew the USA TODAY NETWORK, the largest local-to-national
news organization in the country, now with 109 local markets
integrated with the company's national premium brand
Grew digital audience and engagement within the USA TODAY NETWORK,
finishing 2018 with more than 500,000 paid digital-only subscribers
and ranking #1 in mobile web unique visitors in the News and
Information category1
Built a best-in-class digital marketing solutions business with the
acquisitions of ReachLocal, SweetIQ and WordStream, and the launch of
LOCALiQ, a data-driven marketing solutions brand
Carefully managed the company's cost base to maintain profitability
despite industry challenges, reducing annual operating expenses by
more than $820 million since 20152 (including consolidating
13 production facilities), while maintaining a commitment to the
highest journalistic standards and continuing to produce Pulitzer
Prize-winning content
Gannett's strategy is delivering financial results
Gannett has had stable margins and positive cash flow generation while
transitioning to a digitally-led product and revenue model
Achieved advertising and marketing services revenues of $1.7
billion in 2018, with $781 million of digital advertising and
marketing services revenues
Strong digital contribution ? as of year-end 2018, 36% of total
revenue and 47% of advertising revenue was digital, up from 26%
and 29%, respectively, in 2016
Profitability is in line with industry peer group3
The company's digital marketing solutions business is a growth engine
and has demonstrated its potential as a meaningful contributor to
profitability
ReachLocal adjusted EBITDA margins increased to 12% in 2018,
resulting in double-digit adjusted EBITDA margins being achieved
several quarters ahead of expectations4
The company's strong balance sheet, with a net debt to 2018 EBITDA
ratio of 0.8x,5 well below its peer median, is providing
the financial flexibility to continue executing its digital
transformation
Gannett has maintained a clear, consistent and balanced approach to
capital allocation, focused on returning capital to shareholders and
investing in Gannett's future
Since becoming an independent company in mid-2015, Gannett has
returned $324 million to shareholders via dividends and share
repurchases ? delivering a higher and more stable total shareholder
return than the majority of its peers, and the highest total capital
return of any of its peers when measured as a percent of enterprise
value
Gannett's detailed strategic plan is expected to result in greater
than 60% of revenues coming from digital by 2023, driven by a deeper
penetration of Gannett's local client base with its digital marketing
solutions, and 1.5 million paid digital-only subscribers by 2023.
Revenues should stabilize over the 5-year period, which, combined with
stable to increasing margins, is expected to result in significant
shareholder value creation
Gannett's board and leadership possess the experience, skills and
vision to drive value creation
Gannett's director nominees are fully independent and have experience
and expertise in areas that are critical to Gannett's operations and
digital transformation, including finance, business development and
strategic planning, M&A, digital media, journalism, marketing and
advertising, technology and human resources
Gannett has best-in-class corporate governance policies and practices,
ensuring effective oversight and accountability to shareholders
Executive compensation is aligned with the execution of the company's
transformation strategy and shareholder value creation, with
incentives that are heavily weighted on the delivery of financial
results (with a significant portion at risk) and include specific
digital goals
Gannett has an experienced leadership team with a complementary mix of
institutional knowledge as well as outside perspectives
MNG and its majority shareholder Alden Global Capital are pursuing a
self-serving agenda to take control of Gannett via a misguided
two-pronged approach
MNG's unsolicited proposal is NOT REAL
Despite having longstanding business relationships with Gannett, MNG
did not seek to engage with Gannett prior to leaking and then publicly
disclosing its unsolicited proposal in January 2019
2 days after receiving MNG's proposal, Gannett invited MNG to meet
with Gannett's management and 2 independent directors, but MNG
declined multiple meeting dates and refused to otherwise respond to
Gannett's questions about how it would finance the transaction it had
proposed and address other closing risks. MNG only accepted Gannett's
invitation to meet after Gannett's board rejected MNG's proposal on
the grounds that it is not credible and undervalues Gannett
During a meeting on February 7, well over 3 weeks after MNG announced
its proposal, MNG admitted that it had not yet reached out to any
financing sources and was dismissive of Gannett's other questions
about the viability of its proposal
Now, more than 3 months after submitting its unsolicited proposal, MNG
has still not secured financing
MNG acknowledges that it doesn't have a financing commitment, and
argues that it needs to enter into an NDA in order to get one;
however, this is simply not true
Gannett's financial information is publicly available, and
committed financing is often obtained based upon such information
The real issue preventing MNG from obtaining financing is that the
pro forma gross leverage of the combined company would be more
than 4.0x 2018 EBITDA (or more than 4.5x 2018 EBITDA including
pensions)6 ? a leverage level that approaches Gannett's
distressed peers
The Oaktree letter that MNG has been touting (but has not released
publicly) amounts to nothing more than an assertion from Oaktree
that hypothetically, "a debt financing package can be arranged" ?
But that assessment is not realistic
Oaktree does not suggest in the letter that it would even
participate in the financing, and indeed the amount needed to
finance the transaction far exceeds any amount that Oaktree's
distressed debt fund could reasonably be expected to provide itself
The fact that after more than 3 months, MNG can still present
nothing credible on financing validates Gannett's concerns; MNG's
proposal is simply not actionable
In addition, MNG has continued to gloss over basic critical questions
regarding its proposal
MNG has yet to address the impact of potential antitrust issues
MNG has still proposed no pathway for resolving pension-related
risks
MNG gives conflicting messages about its ultimate goal ? does it want
to be a buyer or a seller? It touts its $12 proposal, but hasn't
launched a tender offer and references conducting a "strategic review"
if its nominees are elected. Does MNG prefer that someone else buy
Gannett? Is the "review" just a ploy to force Gannett to acquire MNG?
All of MNG's nominees have irreconcilable conflicts of interest
All 6 of MNG's board nominees are highly conflicted given their close
ties to MNG and Alden
All of MNG's nominees link back to Health Freeman, president and
founding member of Alden Global Capital
3 nominees are directors or officers of MNG, a direct competitor
to Gannett
4 nominees serve on the board of Fred's, Inc., where Alden is the
controlling shareholder
4 nominees have other longstanding business and/or personal
relationships with each other and/or with Alden co-founder Randall
Smith
MNG's nominees would not bring additive skills or experience to the
Gannett board and would reduce the quality of Gannett's board in terms
of diversity, skills and experience
MNG and Alden have a record of diverting assets and destroying
value
At Fred's, where 4 of MNG's nominees currently serve as directors, the
share price has decreased 92%7 since Alden acquired a
significant stake in December 2016, representing the destruction of
approximately $360 million of shareholder value, despite operating in
a steadily growing market8
Another Alden portfolio company, Payless ShoeSource, has filed for
bankruptcy twice in 2 years, and now plans to close all of its more
than 2,000 stores in the U.S.
Recent litigation between MNG and its largest minority shareholder,
Solus Asset Management LP, demonstrates that MNG has siphoned value to
Alden, while crippling its newspapers through value-destructive actions
According to the lawsuit, MNG has diverted hundreds of millions of
dollars from its newspapers into Alden ventures that have no
connection to its media business9
In its response, MNG admitted to making a number of investments
with diverted assets, including investing $248.5 million of
workers' pension funds in funds controlled by Alden and investing
$158 million for a 24.8% stake in Fred's, Alden's largest single
holding10
According to recent reports, Alden is also currently being
investigated by the U.S. Department of Labor for the management of its
pensions11
Electing MNG's nominees would jeopardize the value of
shareholders' investment by transferring control of Gannett to MNG and
Alden without any guaranteed compensation, let alone a control premium
Gannett believes MNG cannot complete the transaction it proposed, and
would not pursue the transaction if it gained control of the Gannett
board
Indeed, MNG's proxy fight is a way of taking control of Gannett
without having to pay shareholders anything...ever
MNG's investor presentation indicates that if MNG were to gain board
control, MNG would initiate a "strategic review," the outcome of which
is entirely uncertain
MNG and its conflicted nominees have no clear strategy for operating
Gannett during this review
MNG's disclosed operating plan shows only that it will seek to
extract cash from Gannett's assets and increase short-term cash
flows with actions that will likely destroy Gannett's long-term
value potential
Given MNG's and Alden's record, and the irreconcilable conflicts
of interest of MNG's nominees, how can shareholders trust that MNG
won't pursue self-dealings with Alden rather than invest in the
business? How can shareholders trust that Gannett won't become the
next Fred's or the next Payless?
The Gannett board of directors unanimously recommends that shareholders
vote "FOR ALL" of the company's highly qualified, fully independent
director nominees on the WHITE proxy card today.
The Gannett Annual Meeting of Shareholders is scheduled to be held at
8:30 a.m. ET on May 16, 2019, and shareholders of record as of the close
of business on March 18, 2019 will be entitled to vote at the Annual
Meeting. Gannett shareholders who have questions or would like
additional information should contact the company's proxy solicitor,
Innisfree M&A Incorporated, toll-free at 1-877-456-3507.
Greenhill & Co., LLC and Goldman Sachs & Co. LLC are acting as financial
advisors and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal
advisor to Gannett.
If you have any questions, or need assistance in voting
your shares, please call the firm assisting us
in the solicitation of proxies:
INNISFREE M&A INCORPORATED
TOLL-FREE at 1-877-456-3507
Remember: Please simply discard any Blue proxy card you may
receive from MNG. Any vote on MNG's Blue proxy card (even a
vote in protest on their nominees) will revoke any earlier
proxy card that you have submitted to Gannett.
About Gannett
Gannett Co., Inc. (NYSE: GCI) is an innovative, digitally focused
media and marketing solutions company committed to strengthening
communities across our network. With an unmatched local-to-national
reach, Gannett touches the lives of more than 125 million people monthly
with our Pulitzer-Prize winning content, consumer experiences and
benefits, and advertiser products and services. Gannett brands include
USA TODAY NETWORK with the iconic USA TODAY and more than 100 local
media brands, digital marketing services companies ReachLocal,
WordStream and SweetIQ, and U.K. media company Newsquest. To connect
with us, visit www.gannett.com.
Forward-Looking Statements
This communication contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements that are not
historical facts. The words "believe," "expect," "estimate," "could,"
"should," "intend," "may," "plan," "seek," "anticipate," "project" and
similar expressions, among others, generally identify forward-looking
statements, which speak only as of the date the statements were made and
are not guarantees of future performance. Where, in any forward-looking
statement, an expectation or belief as to future results or events is
expressed, such expectation or belief is based on the current plans and
expectations of our management and expressed in good faith and believed
to have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or accomplished.
Whether or not any such forward-looking statements are in fact achieved
will depend on future events, some of which are beyond our control. The
matters discussed in these forward-looking statements are subject to a
number of risks, trends, uncertainties and other factors that could
cause actual results or events to differ materially from those
projected, anticipated or implied in the forward-looking statements,
including the matters described under the heading "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the company's annual report on Form 10-K for fiscal
year 2018 and in the company's other SEC filings.
Appendix A ? Non-GAAP Financial Measures
Consolidated
($ in MM)
Fiscal Year
2018
2017
2016
Net income (GAAP basis)
$15
$7
$53
Provision for income taxes
15
34
14
Interest expense
25
17
13
Other non-operating items, net
(26)
10
10
Operating income (loss) (GAAP basis)
$29
$68
$89
Depreciation and amortization
158
192
133
Restructuring costs
68
44
46
Asset impairment charges
50
47
56
Acquisition-related items
8
5
33
Other items
9
4
3
Adjusted EBITDA (non-GAAP basis)
$322
$360
$360
ReachLocal Segment
($ in MM)
Fiscal Year
2018
2017
2016
Operating income (loss) (GAAP basis)
($1)
($19)
($19)
Depreciation and amortization
42
34
12
Restructuring costs
5
1
1
Asset impairment charges
0
0
0
Acquisition-related items
0
0
0
Other items
1
1
0
Adjusted EBITDA (non-GAAP basis)
$48
$17
($6)
_____________________
1 Source: comScore. 2 Based on pro forma
financials for the fiscal year ended December 27, 2015, filed with
Gannett's Form 8-K on October 21, 2016. The pro forma financial
statements give effect to Gannett's acquisitions of Journal Media Group,
Inc. (acquired on April 8, 2016), North Jersey Media Group, Inc.
(acquired on July 6, 2016) and ReachLocal (acquired on August 9, 2016). 3
Peers include The New York Times Company, New Media Investment Group
Inc., Tribune Publishing Company, News Corporation, McClatchy and Lee
Enterprises, Incorporated. 4 Adjusted EBITDA is a
non-GAAP measure. See Appendix A for a reconciliation of adjusted EBITDA
to Operating Income. 5 Adjusted EBITDA includes
stock-based compensation and is a non-GAAP measure. See Appendix A for a
reconciliation of adjusted EBITDA to Operating Income. 6 Represents
Gannett's estimates of pro forma leverage levels. Source: Market data,
latest publicly available financial statements, Wall Street Research and
IBES estimates as of 03/11/19. Assumes MNG financeable 2018 EBITDA
contribution of $100 million. Leverage ratio including pensions is based
on post-tax unfunded pension liabilities. 7 Based on
Fred's closing stock prices on April 18, 2019, and December 21, 2016
(the day prior to the filing of Alden's initial 13D). 8
Shareholder value lost is estimated as the beginning share count
multiplied by the change in share price over the period. Undisturbed
price of $11.15 is used as the beginning share price for the
calculation. Market growth source: Euromonitor. Statement based on 13-18
CAGR of 3%. CAGR represents growth in market size (measured by retail
value RSP excluding sales tax) for drugstores/parapharmacies in the U.S. 9Sola
Ltd and Ultra Master Ltd v. MNG Enterprises, DE Court of Chancery Case
No. 2018-0134-JRS, March 5, 2018. 10Sola Ltd and Ultra
Master Ltd v. MNG Enterprises, DE Court of Chancery Case No.
2018-0134-JRS, March 19, 2018. 11 Jonathan O'Connell.
"The hedge fund trying to buy Gannett faces federal probe after
investing newspaper workers' pensions in its own funds." The
Washington Post, April 11, 2019.