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Since the publication of our story on the future of the Sarasota Herald-Tribune, new details have emerged about the proposed merger of the Herald-Tribune's owner, GateHouse, and another newspaper giant, Gannett, a union that would create the largest newspaper company in U.S. history. 

New Media Investment Group, the publicly traded company that encompasses GateHouse, says it is taking a five-year loan from Apollo Global Management, a private equity company, to finance the deal and to consolidate previous debt it holds and debt held by Gannett. The eye-catching numbers are the size of the loan, $1.72 billion, and the interest rate attached to it, a whopping 11.5 percent. The prime rate, the rate lenders give their best customers, is 5.25 percent. What that means for the Herald-Tribune, and local journalism, is that, if the deal goes through, more "efficiencies," cost-cutting and consolidations will be necessary to meet the company's greater debt burden. 

According to documents filed with the Securities and Exchange Commission, Gannett shareholders will receive $6.25 in cash per share and also receive roughly half a share of stock in the new company. At the time of the announcement, that translated to $12.06 per share for Gannett stockholders. Instead of welcoming the deal, investors have reacted as if they were forced to drink a glass of curdled milk. New Media's stock price has fallen more than 30 percent this week. Even more surprising, Gannett shareholders, who would have profited from the deal, are also running for the exits. Gannett's stock price fell nearly 6 percent on Wednesday, down to $9.59 a share. New Media's offer, which at the time it was announced would have given Gannett shareholders a premium, now looks far less sweet.

"It seems pretty clear that investors hate this deal," Eric J. Savitz wrote this week in the respected finance publication Barron's.  

When I spoke to Savitz on Wednesday evening, he said he would not be shocked if the proposed merger gets derailed. One possible roadblock, he said, is opposition from Gannett shareholders, who could oppose a deal in which they see themselves getting screwed. Less likely is that federal regulators would block the deal on the grounds that it would concentrate too many news organizations under a single owner. 

If the merger does go through, the new company would be called Gannett, but be controlled by GateHouse, and would include many of the nation's top regional newspapers, as well as USA Today. New Media predicts "synergies" in the partnership could save $275 million to $300 million annually, which, as Savitz noted, "almost any news reporter will read as 'more layoffs are coming.'"

Another aspect of the proposed merger is that GateHouse/New Media will at the end of 2021 terminate its management contract with another private equity company, Fortress Investment Group, which is a subsidiary of the Japanese-owned investment behemoth SoftBank Group. Fortress was receiving 1.5 percent of GateHouse's revenues for its "management" role. The deal still leaves Fortress involved. It will receive 4.2 million shares in the new company and an option to purchase 3.2 million more.

Apollo, though, becomes the key player. A condition of the loan is that Apollo is granted first-lien status, meaning it is first in line to be repaid if the company goes belly up. In addition, as Matt Pearce, a reporter for the Los Angeles Times noted, Gannett CEO Paul Bascobert, who will lead the new company, is scheduled to receive "$4.5 million in bonuses and stock just for walking in the door. Must be nice to be a newspaper executive."

Herald-Tribune readers learned few of these details from the newspaper's coverage this week of the proposed merger, which the paper called "a blockbuster deal." It quoted New Investment Group CEO Mike Reed as saying, "We believe this transaction will create value for our shareholders, greater opportunities for our employees and a stronger future for journalism."

Eric Lipton, an investigative reporter for the New York Times Company, which for decades also owned the Herald-Tribune, had a different take. Lipton tweeted: "Gannett/GateHouse Media intend to slash up to $300 million in annual costs within the next two years after the merger of their massive network of newspapers—most of which have already been cut to the bone. Not good news for journalism."

Since the publication of my story, I have heard from several Herald-Tribune journalists. Two said that my initial report that the number of newsroom employees has dropped to below 50 overstated the staff that is left at the Herald-Tribune. The number is fewer than 30, they said.

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