March 26, 2019

Breakingviews: Extra! Newspaper bidder flubs credit test

by Breakingviews.

It’s a bit like flashing a fake ID to get into a nightclub. MNG Enterprises, the owner of the Denver Post, is waving a questionable piece of paper in an effort to gain credibility in its hostile pursuit of fellow newspaper publisher Gannett.

Back in January MNG, a private company backed by Alden Global Capital, said it wanted to buy the publisher of USA Today for $12 a share, or about $1.4 billion. That represented a 23 percent premium at the time, and it’s 16 percent above where Gannett’s shares closed on Friday.

Gannett rebuffed the offer. One reason was skepticism about MNG’s ability to finance the deal. The newspaper industry is under great duress so borrowing to make acquisitions is no easy feat. MNG tried again on March 20, touting a letter from Oaktree Capital Management stating the investment firm was “highly confident” of MNG’s ability to finance the deal to the tune of over $1.7 billion.

Such missives, popularized by junk-bond pioneer Michael Milken at Drexel Burnham Lambert, are common practice. Typically, wannabe buyers line up at least one securities underwriter, like JPMorgan or UBS, to write a letter. It’s an oddity, though, that this one is from Oaktree, a distressed-credit specialist. Unlike an investment bank, it’s not going to go out and actually raise the money it’s expressing confidence about. Nor does MNG’s statement suggest Oaktree is committing to playing a funding role if a deal is sealed.

That raises the possibility that the usual Wall Street suspects weren’t willing to support MNG. Additionally, Oaktree beat a path out of newspaper investments a few years ago when it struck a deal with Tronc, now known as Tribune Publishing, to buy out its stake in the company at the same premium price Tronc had rejected when Gannett offered a deal.

There’s an added credibility burden when a takeover is hostile, too. When Broadcom pursued fellow chipmaker Qualcomm, offering more than $100 billion, it showed up with committed financing – although its bid was ultimately nixed by the U.S. government.

It seems MNG couldn’t muster that kind of calling card, even on a much smaller scale. The newspaper owner flubbed its credit test.

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