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Gannett shareholders sue over GateHouse merger profit projections

USA TODAY logo USA TODAY 10/4/2019 Karl Baker, Delaware News Journal
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Gannett Co., the owner of USA TODAY, faces three shareholder lawsuits in Delaware court over financial projections the media company made when announcing its impending acquisition by GateHouse Media. 

The plaintiffs, all Gannett investors, demand that executives reveal the ways they calculated the profits that they expect a combined Gannett/Gatehouse company to make, years into the future.

Two of three suits are seeking class-action certification.

"Because of the false and misleading statements ... the Class are threatened with irreparable harm," plaintiff Richard Scarantino wrote in his suit filed Sept. 16.

In a statement, Gannett said the company "believes these complaints are without merit, and intends to defend against them vigorously.”

More on the merger: Gannett, New Media Investment Group shareholders set to vote on deal

Gannett-GateHouse merger: Will stockholders approve it?

a tall building: USA TODAY owner Gannett and GateHouse Media owner agreed to merge together© USA TODAY USA TODAY owner Gannett and GateHouse Media owner agreed to merge together

After years of merger speculation amid a turbulent newspaper industry, officials from Gannett, and GateHouse owner New Media Investment, announced in August they had agreed to combine into a single publishing company that would control more than 260 American daily newspapers.

While the new company would be called Gannett, New Media Investment is actually the acquirer in the cash and stock transaction, which has been valued at $1.4 billion. To finance the deal, the company is borrowing $1.8 billion through a five-year, 11.5% interest-rate loan from private equity firm Apollo Global Management.

The companies expect to save as much as $300 million annually by combining operations.

In a statement to shareholders in August, officials also said the companies' core earnings would grow annually after next year to a healthy $347 million by 2023.

Those earnings projections are one of many financials at issue within the three lawsuits. Plaintiffs claim the figures are materially misleading because Gannett and GateHouse did not use standard accounting principles – called GAAP – to arrive at the numbers. 

While it is common for publicly traded companies to list non-GAAP numbers, they must describe how those figures are calculated, the lawsuits state.  

"In order for Gannett shareholders to become fully informed regarding the fairness of the Merger Consideration, the material omitted information must be disclosed to shareholders," said plaintiff Howard Steiner in his suit. 

Steiner, and the people bringing the other lawsuits, are asking a judge in the U.S. District Court of Delaware to block a planned Nov. 14 shareholder vote on the acquisition proposal until more information is provided.

Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.

This article originally appeared on Delaware News Journal: Gannett shareholders sue over GateHouse merger profit projections

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