Wednesday, July 24, 2013

Here's the question that was on everyone's mind

Busy CEOs like Gracia Martore are rarely available for interviews. So, Wall Street stock analysts squeeze as much as they can out of the telephone conferences held when quarterly earnings are released.

GCI held one Monday after the second-quarter earnings report. And one analyst, Craig Huber, asked a question on everyone's mind:

Now that the company was bulking up on TV stations with the purchase of Belo, would GCI's board of directors follow News Corp., Tribune Co., and others by spinning off its newspapers into a separate company?

That would be a huge deal -- one that Martore would not likely discuss with much candor. Still, sometimes a CEO can inadvertently signal a company's intentions. Unfortunately, I don't think Martore's reply did any of that. She was ready for the question, and might have even read from a script in her response.

What she said
According to Seeking Alpha's transcript:

"I think most of the focus right at the moment is the successful integration of the terrific new acquisition, Belo Corp. That will take some time and energy and opportunity to realize the unique synergies that we bring to the table vis-à-vis that transaction. But at the same time, as we've said, we have a lot of flexibility in our balance sheet to do some other things, so we'll also focus on other opportunities. Gannett is committed to increasing shareholder value in the medium to long term. We always, at the board level, are looking every time we meet and in between meetings, we are looking at opportunities to increase shareholder value. We never rule anything out, but our focus right now is a transaction that has created a lot of value for the company and will create even more into the future. So we're focused on that in the short term, to have a successful integration."

I've listened to more than a dozen of these conference calls over the five-plus years I've been keeping this blog. Martore's response to questions like this is now boilerplate: We never say never. However, in whatever we do, you can count on Gannett to maintain the strong financial discipline we've always offered our shareholders.

None of that means there isn't something going on behind the scenes, of course. She's left herself lots of wiggle room.

Consider this example
In April, as she convened the first-quarter conference call with analysts, Martore and her team were just four days away from presenting a written offer of $1.5 billion in cash for Belo's 20 stations. In fact, she'd been in talks with her Belo counterpart since last summer, and had signed a written confidentiality agreement in November to enter serious negotiations.

So what did Martore tell analyst Michael Kupinski during that conference, after he asked if GCI was shopping for more TV stations?

Here's her reply, according to the transcript: "More scale and a bigger footprint matters in the broadcast arena. . . . We have very, very good scale now, but improving on that scale could only be a positive going forward. But as always, we would be incredibly disciplined in what we would look at and what multiple we would pay."

Ultimately, the deal was announced June 13.

Nothing's illegal here
Regulators at the U.S. Securities and Exchange Commission don't require companies to disclose inside information in real time. Businesses have many legitimate reasons to keep information confidential from competitors to protect trade secrets, new products under development, or pending deals like the one for Belo.

I don't know whether GCI is seriously considering a spinoff of its newspapers. But as you weigh Martore's fresh remarks on the subject, keep the Belo example in mind.

Earlier: live coverage of the Q2 conference call.


  1. She deserves the Fred Astaire award for side-stepping that question. Of course, he should have known he would get a non-answer.

  2. My reading is that they would consider a spinoff but probably not until they have consolidated the Belo properties. But who knows?

  3. Gannett will do this for sure. It's in the best interest of the shareonwers, and that seems to be the end all lately.

  4. I hope so.

  5. I just don't see it happening. Those that have done it did not have a USAT-like national brand intertwined with their local operations.

    1. The editorial relationship -- i.e. Project Butterfly -- could be unwound. The bigger problem for USAT would be losing easy access to the community newspaper printing presses.

  6. Project Butterfly is moving full speed ahead. I'd expect any print spinoff to include USAT. The USAT brand doesn't mean much to the broadcast properties.

  7. I am no USAT fan, but USAT means a lot to the entire strategic direction that they have been piecing together over the past two years. The national + local reach approach is a cornerstone of that strategy and includes all of their properties - print, broadcast and digital PLUS the new digital marketing services business they are trying to build. You can't talk about having 5,000 journalists, plus being in 150+ markets when you spinoff over half the company.

    Jim - your disconnect from how the company works now is showing. Printing presses are part of GPS, which the company has already tried to spinoff (but couldn't get the price they wanted.) GCI print locations for USAT have been on the decline for years - so access to USCP presses is not a factor at all.

    Spinning off print would represent a major retreat on the huge investment on the strategy course they have set and I'm not just talking about the tens of millions spent on BCG consultants. In the end, though, such a move would require truly bold thinking and courage - qualities the current leadership just do not possess.

    1. How could they spin off GPS when production sites share real estate with newspapers?

      In Louisville, for example, the press is in the basement of a building that houses not only The Courier-Journal, but also a regional page production hub and a customer call center.

    2. In case you hadn't noticed, they are selling real estate all over the country. Dumping depreciated fixed assets is a key part of the cost restructuring strategic initiative they launched in 2010.

  8. Watch what happens if Tribune (TV side) does an IPO... If it blasts off, GCI is next on the launch pad. USAT will stay with the print side, but I could make an argument for it adding value to either side of the house. If I were USAT, I would be making nice-nice with broadcasting (which it should have better done long-long ago).

  9. Nice one, Jim. You should accomplish your objective from this speculative post and gain a few extra clicks as evryone pipes in with their opinion. Of course, opinions are like assholes and arm pits: everyone has several.


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