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The Elbert Files: How merger affects Iowa


The pending merger of Gannett and GateHouse Media could be both a boon and a curse for newspaper readers in Ames, Burlington, Boone, Perry, Nevada, Adel and Hamburg.

All of those towns are served by daily or weekly newspapers currently owned by New York-based GateHouse Media.

A merger with Gannett, which owns the Des Moines Register and the Iowa City Press-Citizen, will give GateHouse properties access to national, regional and state news produced for the Register and Press-Citizen.

The Gannett package should include lots of sports stories and features about University of Iowa and Iowa State football and basketball teams and overviews of Iowa high school sports.

It will include horse race news about the Iowa caucuses and, once the 2020 election is over, state government, along with agricultural and entertainment news  about Des Moines and Iowa City.

On the flip side, it could also mean that Register readers will see more news about Ames, as well as occasional features from Burlington, Perry and the other towns with GateHouse properties. The downside is likely to be fewer resources for news gathering, advertising and promotional efforts at the already thin dailies and weeklies. 

On many levels, the merger is an unusual transaction. The smaller company (GateHouse) is acquiring the larger operation (Gannett). It’s not unlike when Minneapolis banking giant Norwest Corp. acquired Wells Fargo Bank in 1998 and kept the Wells Fargo name. That is exactly what the new media companies will do.

Gannett shareholders are expected to receive less value than they would have from a hostile takeover bid from a different company that was spurned earlier this year.

The GateHouse offer was initially valued at $12.06 a share, compared with the earlier hostile offer of $12. But the value floats depending on the value of GateHouse shares, and they fell following the merger announcement. The lower value is not expected to be a problem when Gannett and GateHouse shareholders vote on the deal on Nov. 14.

The stated purpose of the merger is to create $300 million of synergies that will allow the combined company to acquire assets needed to compete effectively for advertising dollars against social media giants Facebook, Google and others in coming years.

For the merged company to move forward effectively, it must update and integrate the many hardware and software systems of the two companies. Plus, it will need a strategy, which does not currently exist, for winning back advertising dollars from social media.

Newsonomics’ Ken Doctor, an analyst of new and old media, argues nothing will be easy for the new Gannett, despite its unprecedented size with more than 250 daily newspapers.   

Assuming the new company can find $300 million worth of redundancies, Doctor said, at least $100 million will be drained off for severance and other merger expenses.

After that, he noted, there will be a heavy debt service at 11.5% on $1.8 billion that will be borrowed to put the deal together. Interest alone for the first year could total more than $200 million, depending on how much principal is repaid through the sale of assets. 

Doctor said that to achieve $300 million in cuts, “more than 10% of the chains’ 25,000 workforce” could be let go. 

The cuts, he added, are expected to come almost entirely from outside newsrooms, with business-side functions, including advertising, production, finance and circulation, taking the brunt.

Finally, because both Gannett and GateHouse are projecting flat revenues through 2025, analysts say that virtually every department of the merged company will be squeezed.

But that won’t be anything new for either chain.

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