New York Daily News real-estate value could mitigate liabilities in tronc deal while new New York footprint could make tronc a more attractive target, industry sources conclude.

Chicago Tribune and Los Angeles Times publisher tronc Inc. added a major market to its portfolio with its purchase of the New York Daily News at a $1 cash purchase price coupled with the assumption of more than $61.2m in liabilities, and industry sources responded with cautious optimism.

The cash payment to seller Mortimer Zuckerman is nominal, but a Tuesday (Sept. 5) filing with the Securities and Exchange Commission shows the buyer will assume liabilities such as $18.7m in letters of credit, to be replaced within 60 days of the acquisition; a single-employer defined benefit pension obligation of about $26.5m, to be paid out at $2m a year; multi-employer pension plans and obligations requiring about $2m in annual contributions; and about $16m in workers’ compensation and automobile insurance liabilities. The operational and pension liabilities that come with the acquisition will be met from the New York Daily News’s cash flow, according to SEC filings.

The assets that come with the newspaper include about $8m in net working capital; plant and equipment assets that saw a $150m investment less than ten years ago; and an option to purchase a 49.9% stake in New Jersey real estate for up to $3.5m, which will become a requirement when the lease ends in 2021. The Daily News will have an option to require the sellers to buy its interest at the then-current fair market value.

The company had $174.2m in cash on the balance sheet as of June 25. An additional source of liquidity is the undrawn $140m RCF due August 2019, which had $34.7m supporting letters of credit at that time. On the debt side, tronc had $369.1m outstanding under its TL due August 2021 as of June 25.

Kevin Kamen, president and CEO of media industry brokerage and appraisal firm Kamen & Co., believes the acquisition makes sense as a way to build out the portfolio and audience and appeal to advertisers.

“It gives tronc a new market, and nothing is as exquisite as having the New York market,” he said.

Management’s “entire vision, I believe, is to build up their portfolio and sell the whole thing,” and adding a New York publication to the portfolio “certainly makes it more appealing to investors,” Mr. Kamen said.

After tronc’s bid for the Chicago Tribune’s rival Chicago Sun-Times failed earlier this year, management signaled that it was eager to find a new target to acquire.

The Nasdaq-listed shares rose just under 1% Tuesday to $14.79 with a $488.5m market cap. The stock is down 14.6% over the past year.
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