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Extra! Newspaper bidder flubs credit test


By Jennifer Saba

(The author is a Breakingviews columnist.)

NEW YORK, March 25 ( 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.

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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- MNG Enterprises said on March 20 it had received a letter from Oaktree Capital Management saying the investment firm was "highly confident" in the newspaper publisher's ability to attain a debt financing package worth $1.7 billion in connection with its proposal to buy Gannett. MNG made an unsolicited offer to buy Gannett for $12 a share on Jan. 14.

- Gannett has rebuffed the offer. The publisher of USA Today said in a statement the letter was "highly conditional" and that Oaktree did not indicate it would arrange financing.

MNG statement


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