ProJo buyer has contract leverage

GATEHOUSE MEDIA, the new owners of the Providence Journal, will decide upon the closing of the sell which employees to take on and which will be let go, and those who stay will be offered new terms of employment as determined by Gatehouse. / PBN FILE PHOTO/BRIAN MCDONALD
GATEHOUSE MEDIA, the new owners of the Providence Journal, will decide upon the closing of the sell which employees to take on and which will be let go, and those who stay will be offered new terms of employment as determined by Gatehouse. / PBN FILE PHOTO/BRIAN MCDONALD

The pending sale of The Providence Journal to a sprawling national newspaper chain whose past acquisition frenzy drove it into bankruptcy caused many local observers to scratch their heads.
If current owner A.H. Belo Corp., another national chain, couldn’t stomach declining circulation and revenue at Rhode Island’s largest newspaper, what would make Gatehouse Media Inc. and its parent New Media Investment Group any different?
But even though Gatehouse won’t take over the Journal until the third quarter and has said little about where it intends to take the paper, ways it might be more valuable to its new owner are already emerging.
In an asset-purchase agreement filed with the federal Securities and Exchange Commission, the new owners indicated they do not intend to honor the existing collective-bargaining agreement between the Providence Newspaper Guild and Belo.
When the sale closes, Gatehouse will choose which current Journal employees it wants to take on and will offer them jobs under new terms, not those spelled out in the union contract, according to the asset-purchase agreement.
Up to 40 existing employees that Gatehouse does not want to keep on at the Journal will be let go under Belo’s ownership and severance plan. Gatehouse will still reimburse Belo for the severance costs of those layoffs, but the employees will be protected from receiving a severance under Gatehouse’s terms, which would presumably be less generous.
Gatehouse’s ability to void the CBA points out an inherent financial advantage new buyers have operating a legacy news operation from longtime holders, and is likely one reason papers have changed hands so frequently during this period of industry decline and upheaval.
The Providence Newspaper Guild’s current one-year contract with Belo ends at the end of the year, but if Belo wanted to extract concessions in the next deal, it would have to negotiate them from the starting point of the existing contract. Throwing out the whole deal completely could bring an unfair-labor-practices complaint. Gatehouse, on the other hand, can start from scratch and likely impose less-generous compensation and benefits than its predecessor.
The Guild has so far been mostly silent on the sale, but Roger Williams University Law School Dean Michael Yelnosky, who specializes in labor law, said the union likely does not have legal recourse to stop Gatehouse from scrapping the CBA.
“What it means is they can unilaterally set the new terms and conditions of employment of the transferred employees,” Yelnosky said. “They will be saying to transferred employees: ‘This is what we are offering.’ ”
On the brighter side, Yelnosky said there is no reason to think the Guild will not be able to represent Journal employees who remain once the transition is complete. There are no signs Gatehouse is trying to “break” the union.
“The expectation is that the majority of employees operating under Gatehouse management will have been employees under Belo and, if that is case, Gatehouse has to continue to recognize the union as representative of employees,” Yelnosky said.
Based on Gatehouse’s national strategy and that of competing national chains, almost all observers expect the company to cut expenses and jobs at the Journal, with the main question being how deep those cuts will go.
Now in its final weeks under Belo control, the Journal employs 155 members of the Providence Newspaper Guild, according to the union, half the number who worked there before the recession. The total employee count for the Journal stood at 385 at the end of 2013, according to the 2014 PBN Book of Lists.
Gatehouse, which is controlled by Fortress Investment Group, owns 429 publications in 24 states, including Massachusetts, where it has acquired the Community Newspaper Co. chain and larger dailies including the (Quincy) Patriot Ledger and (Brockton) Enterprise in 2006. In the early years, as it took on heavy debt acquiring papers at what would now be massive overvaluations, Gatehouse was known for cost cutting.
Between the summer of 2007 and fall of 2008 alone, the company laid off about 50 journalists in its New England unit, company CEO Kirk Davis told Northeastern University associate professor Dan Kennedy in 2008.
Last year, a leaked memo from the Patriot Ledger and Enterprise indicated the papers were cutting coffee and office supplies to their newsrooms.
Not including the pending Journal sale, the most recent local Gatehouse purchases were the September 2013 acquisitions of the Cape Cod Times and New Bedford Standard-Times.
Within one month of those deals, Gatehouse announced 17 layoffs at the Cape Cod Times (12 in the newsroom) and eight in New Bedford.
Extensive as the cost cutting has been, it hasn’t been out of line with the rest of the industry, where almost all newspapers have shed jobs as advertising revenue has declined over the past decade.
At the Worcester Telegram and Gazette, another Providence Newspaper Guild paper, new owner Halifax Media Group let go 20 of its 80 employees after the sale closed in June, according to numerous published reports at the time.
At the national level the Newspaper Guild, parent union of the Providence Newspaper Guild local, President Bernie Lunzer said Gatehouse has not been an unreasonable owner.
“We have a relationship with Gatehouse, and Gatehouse has not been a bad company to work with,” Lunzer said. “I would be surprised if their goal was to buy the Journal, come in and make everyone miserable.”
Lunzer said he had been in contact with members in Providence about the sale and would offer whatever assistance he could, but at this point the next step was to wait and see what Gatehouse’s intentions are.
With local President John Hill on vacation last week, Providence Guild Administrator Betsy Regan said the union remains optimistic, but wouldn’t be able to comment on Gatehouse’s plans until more details are revealed. “We are still hopeful Kirk Davis’ comments in the full-page ad that appeared the morning after the sale announcement will be more descriptive of Gatehouse’s attitude than that of A.H. Belo’s SEC filings,” Regan said.
In the letter to Journal readers, Davis acknowledged the paper’s “indispensable role” in the community and promised to uphold its traditions.
Jason Stewart, managing director and analyst at Compass Point Research and Trading LLC in Washington, D.C., gave publicly traded Gatehouse parent New Media Investment Group a “buy” rating in March and last week said the Journal purchase fits in with what looks like a promising business model.
“A couple of things make them unique among competitors – one is that they don’t have significant leverage, which gives them more flexibility to make acquisitions,” Stewart said.
Stewart said the local small-business digital marketing service Propel is geared toward has been an underserved space for a long time, with existing agencies reluctant to get involved because of the small per-client dollars involved. With a sales force already on the ground in southern New England from its newspapers, Gatehouse could exploit that market.
While he expects cost savings, consolidation and economies of scale to be a significant part of Gatehouse’s model, Stewart said eventually reversing, or at least significantly slowing, the loss of revenue at its properties would be necessary for longer-term success.
“I don’t think cutting cost alone is enough for New Media,” Stewart said. “In order to make the stock attractive, they need to acquire at low multiples, need to push digital revenue up, and need to grow Propel, not just to advertise in their papers, but in other areas as well. They have to do all three.” •

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