Michael Ferro, majority owner of the Chicago Sun-Times, has become the largest shareholder in Chicago-based Tribune Publishing, parent company of the Chicago Tribune, Los Angeles Times, The Baltimore Sun and other daily newspapers.
Tribune Publishing sold more than 5.2 million shares of newly issued common stock to Merrick Media, a Chicago-based investment firm controlled by Ferro, in a $44.4 million deal announced Thursday.
The purchase gives Ferro, a successful technology entrepreneur and nascent media baron, nearly a 17 percent stake in Tribune Publishing and a significant say in the direction of the legacy newspaper company as it navigates its digital future. Ferro, 49, will become non-executive chairman of Tribune Publishing's board. He will retain his stake in the Sun-Times but is stepping back from active management.
Addressing Tribune Publishing employees during a webcast Thursday, Ferro gushed over his new investment and outlined his vision for helping Tribune Publishing reverse years of industrywide revenue declines.
"It's not as simple as one may think," Ferro said. "It's not about digital subscribers or print. Some of the biggest companies in the world are using our data and making billions of dollars in it, and we need to find a way how we tap into that so that our journalism remains stronger than ever."
Ferro said he sought to create more value from Tribune Publishing content, develop new digital properties and leverage untapped logistics capabilities associated with newspaper distribution.
Merrick Media's holdings surpass those of Los Angeles-based investment firm Oaktree Capital Management, which had been the company's largest shareholder. Tribune Publishing filed paperwork with the Securities and Exchange Commission in November, signaling Oaktree's interest in selling its 4.7 million shares.
Under terms of the transaction, Ferro's firm cannot acquire more than 25 percent of the outstanding shares and cannot sell its stake in Tribune Publishing for three years.
Ferro will retain an ownership interest in Wrapports, the investment group that bought the Sun-Times in December 2011, but he will relinquish "all operating involvement" with the newspaper, said Dennis Culloton, a Wrapports spokesman.
Even in the digital media age, industry experts say federal regulators still frown on a single owner who has two major daily newspapers in one city. But with managerial firewalls erected and a large but minority stake in Tribune Publishing, it isn't clear Ferro's investment will raise concerns, according to Lee Simowitz, a Washington-based antitrust attorney with Baker Hostetler.
"Clearly there's a consciousness of these issues and there's been an attempt to address them," Simowitz said. "Whether that attempt would be sufficient is hard to say."
Financial analyst Hamed Khorsand, who follows the company for BWS Financial, said investors are more concerned about the dilution of Tribune Publishing's stock and the decision to eliminate the cash dividend of 70 cents per share. Tribune Publishing's stock fell more than 11 percent Thursday, closing at $7.98 per share.
"The actions are very shareholder unfriendly," Khorsand said. "The stock price is down mostly because they cut the dividend."
The deal, completed Wednesday after the stock market closed, more than doubles the amount of cash on hand at Tribune Publishing, enabling the company to pursue strategic acquisitions and its digital transformation, according to Tribune Publishing CEO Jack Griffin. "This is a vote of confidence in our strategy and gives us further capacity to accelerate it," Griffin said.
In 2014, Tribune Publishing acquired 38 suburban Chicago newspapers from Ferro's Sun-Times Media for $23.5 million, and last year bought the San Diego Union-Tribune for $85 million.
Topping the list of potential acquisition targets is the Orange County Register, where Tribune Publishing is expected to bid against two other potential buyers for the assets of bankrupt California publishing company Freedom Communications.
Ferro's technology investment track record has yielded some big returns. His investment firm Merrick Ventures bought a controlling stake in Merge Healthcare, a Chicago-based medical software company, for $20 million in 2008. Though the company did not turn a yearly profit under Ferro, he sold it in October to IBM for about $1 billion, including the assumption of debt.
His investment in the Chicago Sun-Times has yet to produce such dividends.
Wrapports bought the Sun-Times and its portfolio of suburban newspapers for about $20 million. His big plans mostly fizzled, and the newspaper and its staff have been substantially downsized amid steady losses. Investors injected an additional $70 million into the operation as of last spring.
Among the failed initiatives was Grid, a glossy Sunday business magazine launched in early 2013 that disappeared within months, along with much of the newspaper's local business coverage, which has since been farmed out to USA Today.
In 2013, the Sun-Times directed reporters to snap photos with iPhones and fired the paper's photographers, a move that drew national attention and became symbolic of the headwinds facing the newspaper industry.
Its digital initiatives also have fallen short, notably the low-budget Sun-Times Network, an aggregated national news site.
Ferro will now take a hands-off approach with the Sun-Times, stepping down as chairman of Wrapports. Veteran Chicago journalist Bruce Sagan, 87, a Wrapports board member and publisher of the Hyde Park Herald, was named chairman of Sun-Times Holdings.
Jim Kirk, Sun-Times publisher and editor-in-chief, will join Sagan on the new board overseeing the Sun-Times. John Canning, co-founder of Madison Dearborn Partners, will assume the role of chairman of Wrapports.
Ferro said the Sun-Times is in a "very healthy position now," and discounted the idea that his dual ownership signaled Chicago would soon be a one-newspaper town.
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"They're different products," Ferro said. "I see both products being around for a very long time."
Griffin said he welcomes Ferro's investment and involvement in Tribune Publishing. "He brings vision and energy and commitment and capital," Griffin said. "He's a tremendous admirer of our brands at Tribune – our premium journalism, our content – so it's a winning combination for the company."
Ferro has an even more ambitious goal for his investment in Tribune Publishing.
"This is going to be my legacy business," Ferro said. "I hope that this is what people remember me for 100 years from now."