Commentary

Gannett's Stock Gain Fades After Adoption Of 'Poison Pill'

USA Today publisher Gannett yesterday adopted a shareholder rights' plan -- also known as a "poison pill"-- to guard against a hostile takeover after a dramatic decline in its share price to record lows.

News of the plan triggered a surge of as much as 57% in the shares before the market opened yesterday -- mostly likely from short sellers covering their bearish trades -- but those gains faded by the end of the day. Jittery investors are incredibly pessimistic about the prospects for the company, whose market value now stands at about $87 million.

The difference between its market capitalization and certain bookkeeping assets would be valuable in a takeover, making the poison pill even more necessary.

As of the end of last year, Gannett had about $435 million in income tax net operating loss carryforwards and other tax assets that it can use to reduce its tax bill.

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The poison pill would take effect if certain shareholders were to boost their ownership in the company by more than 50% in the next three years. The plan would dilute that ownership by offering other shareholders a chance to buy stock at a steep discount.

The coronavirus pandemic has taken a heavy toll on the company's share price -- which is down about 90% since the beginning of the year. Its next quarterly report will provide a clearer picture on how much the COVID-19 has negatively affected advertising revenue.

The crisis has made the company's cost-cutting plans much more immediate, accelerating a revenue decline that had been forecast to take several more years.

Gannett had been steadily profitable before the pandemic, and still has a chance to recover from these short-term travails.

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