A Seattle investment fund with a history of contrarian bets is caught up in an old-fashioned newspaper boardroom battle.
Smead Capital Management, a downtown Seattle firm that manages about $2.3 billion in client assets, is among the largest shareholders in Gannett, the Virginia-based newspaper chain trying to buy Tribune Publishing.
Tribune, owner of the Los Angeles Times and Chicago Tribune, has fought the takeover, bringing on a new billionaire shareholder and adopting other measures to avoid an acquisition.
No matter, says Cole Smead, who helps manage investments at the firm founded a decade ago by his father, William Smead. There are other fish in the sea. And Gannett, the owner of USA Today and hundreds of other newspapers, may end up wearing down Tribuneâs resistance and getting a better price for the company down the line, he says.
âYou have quite a few shareholders, like us, who are interestedâ in the deal going through, said Cole Smead, who helps oversee the companyâs investments. The firm holds about 5.2 percent of Gannettâs stock, according to S&P Global Market Intelligence. âWe donât think Tribune has a hopeâ of thriving on its own.
Gannett has long been a force for consolidation in the media business, scooping up newspapers and television stations, and earning a reputation in the industry for cost cuts and corporate reorganizations. (Last year it split off its TV broadcasters, including Seattleâs KING, into a separate company called Tegna.)
That consolidation is part of what draws Smead to the company, and to a potential tie up with Tribune.
Eventually, he says, advertisers who have flocked to online advertising purchases will appreciate the value of the local, engaged eyeballs that follow newspapers. And with fewer two-newspaper towns left, Gannettâs network will have less competition.
âThey didnât always run their businesses well,â Smead acknowledged. âBut what we think they have today is one of the premier content and advertising platforms in the U.S. Especially as people ask the question of whether online advertising is really as engaging as theyâve been taught to believe.â
Thatâs an unpopular bet.
The advertising business in which newspapers used to play a leading role is now increasingly controlled by Google, Facebook, and digital media specialists who target ads to specific online audiences.
Gannettâs advertising revenue has plunged 68 percent since 2005, the peak year for the modern U.S. newspaper business. The company is forecasting a decline of at least 5 percent this year.
Smead makes its business investing in, and holding on to, what the firm believes are underloved companies poised for a turnaround. Itâs been invested in Gannett since late 2009.
And newspapers arenât the only elderly industry the firm would consider, Smead says. âWeâre insane enough, that just for fun we looked at some radio companies a few months ago.â