In The Headlines

Gannett vs. Tribune Publishing: Sign of a Dying Industry?

As newspaper chains Gannett Co., and Tribune Publishing trade threatening e-mails and legal notices over a hostile acquisition bid that Gannett launched last month, it is hard not to picture a couple of massive dinosaurs circling each other on some ancient battleground. Gannett, which owns papers like USA Today and the Detroit Free Press, threw the first punch in April with an $815 million takeover offer for Tribune, whose major assets are the Los Angeles Times and the Chicago Tribune. It quickly became obvious that it was not going to be a friendly deal when Gannett accused Tribune management of ignoring its offer, and started sending out press releases with very mixed messages. Tribune management eventually responded to the offer by saying Gannett was trying to “steal the company” from shareholders, despite the fact that the original price was a 63% premium to Tribune’s market value before the deal was announced.

The pressure on Tribune’s controlling shareholder, Chicago-based entrepreneur Michael Ferro, increased after the company’s second-largest shareholder—investment fund Oaktree Capital Management—sent a letter to the company’s board advising it to “engage Gannett immediately” about the takeover bid, calling it “the only possible conclusion consistent with your fiduciary duty.” Ferro responded to a new, more valuable offer from Gannett by saying he had no intention of being acquired by the larger company.

Ferro has tried to make the argument that Gannett’s offer for Tribune is too cheap, because Ferro himself has a plan in place that will dramatically increase the chain’s value—in part by expanding the global reach of papers like the Los Angeles Times with new bureaus in other countries. Oaktree said it met with Ferro and listened to his plans for the “digital transformation” of Tribune Publishing, but believed his ideas were too risky and unlikely to succeed. “Companies with much greater resources and a substantial head start are struggling in a rapidly changing environment to effect digital change that is profound enough and quick enough to overcome the outgoing tide of print revenues,” the firm said.

For Gannett, there is only one real driving force behind its offer, and that is the need to consolidate as many print newspaper assets as possible, as cheaply as possible. Why would it want to do this? Because it appears to be the only survival strategy left in a rapidly declining industry.

The print advertising revenue that used to prop up the business models of newspaper chains like Gannett and Tribune’s former parent, Tribune Co., has declined rapidly over the past decade as advertisers and readers moved to digital platforms like Facebook and Google. Between 2000 and 2014, the U.S. newspaper industry lost more than $50 billion in advertising revenue, and if anything, that trend continues to accelerate.

The only real option left for largely print-based companies like Gannett and Tribune, in this kind of revenue-losing environment, is consolidation and cost-cutting. So Gannett wants to bring the smaller company under its wing, because that would allow it to combine editorial and business units and remove costs. Some analysts say those synergies could generate as much as $100 million in savings, and thereby boost Gannett’s cash flow.

As investor and financial commentator Kevin O’Leary recently noted, the print newspaper business is heading towards the zero mark, and so the only real approach is to milk those assets as efficiently as possible. “By putting all the zero candidates together on life support,” O’Leary said, “you suck out every dollar before you turn out the lights.” It is not a very happy metaphor, but the financial condition of the industry indicates it is probably very close to the truth.

Michael Ferro may want his shareholders to have faith in his vision of returning Tribune Publishing to some kind of halcyon time when newspapers ruled the media world and spun off millions in cash flow with virtually no effort. But his investors would probably rather just have some money and a stake in something larger that has a better chance of survival.

Citations

1. http://for.tn/1WGNPHi – Fortune
2. http://onforb.es/1YJmv97 – Forbes

Demand for Internet Connectivity Sends the Space Business Soaring

When Elon Musk’s Space Exploration Technologies (known as SpaceX) set a rocket down on a barge floating in the Atlantic Ocean recently, many cheered it as the latest sign man is quickly moving toward being able to explore brave new worlds. Yet the more immediate beneficiaries of SpaceX’s satellite-ferrying rockets will be businessmen checking e-mails from Singapore Airlines flights above the South China Sea, or teens posting photos on Facebook from Indonesia’s jungles. While the global satellite industry brought in $203 billion in revenue in 2014, the latest year for which Satellite Industry Association data are available, only $5.9 billion of that came from launches. Half of satellite revenue, $100.9 billion, came from consumer services, such as transmitting TV programming or cell phone calls, or providing broadband Internet via satellite.

The demand for constant Internet connectivity is fueling a surge in satellite launches by rocketeers such as SpaceX, Arianespace, Eutelsat Communications, and SES. Liftoffs may increase 30% during the next five years as airlines, phone companies, electronics makers, and carmakers seek bandwidth. Satellite demand in Asia is further boosted by efforts to bring service for the first time to people in places such as India and Indonesia. The two nations are home to 20% of the world’s population, but most people there are offline.

That portends good business for satellite builders such as Airbus Group, Boeing, and Lockheed Martin, as annual production of the machines is expected to quintuple, to 50, says Richard Bowles, Managing Director for Arianespace’s Asean region. “Satellites are showing to be a large part of the communications infrastructure,” he says.

There were 208 satellites launched in 2014, up from 107 a year earlier. SES plans six launches through 2017, and Eutelsat plans five during the next four years. Arianespace’s backlog for launches topped 50 at the end of last year. And SpaceX plans 18 this year—triple last year’s number. The company put a Japanese commercial communications satellite into orbit during its May 6th launch. “We’re expecting by maybe the third or fourth quarter that we would be doing a launch every two or three weeks,” Musk said during an April 8th briefing.

Transport businesses are spurring demand. Singapore Air plans to have high-speed Wi-Fi on its planes in the second half of 2016. It signed with Honeywell Aerospace in November and will use Inmarsat satellite service. Passengers on more than 2,000 commercial planes connect to the Internet using SES satellites, Chief Executive Officer Karim Michel Sabbagh said on a Feb. 26 earnings call. It leases bandwidth to airborne Wi-Fi providers Global Eagle Entertainment, Gogo, and Panasonic Avionics. Panasonic Avionics beams Wi-Fi to more than 3,000 aircraft and expects to add 12,000 more within a decade, spokesman Brian Bardwell said in an e-mail. “We believe that just about every narrowbody aircraft will at some point be equipped with broadband connectivity,” he said. “Satellite-based service is hands down the best option for our customers.”

Singapore Telecommunications recently took more capacity on a Eutelsat satellite to improve network connectivity in Southeast Asia, and in April it partnered with Inmarsat to protect data in ships’ bridges from hackers. O3b Networks equipped Royal Caribbean Cruise ships with high-speed connections.

“There are certainly more and more satellites going up, and it’s going to grow,” says Shiv Putcha, Associate Director at market research firm IDC in Mumbai. “The potential is more pronounced in Asia. There is a higher need for this in this part of the world.”

Citations

1. http://bloom.bg/1R9SIR7 – Bloomberg
2. http://bit.ly/1UjeRUN – Satellite Industry Association

The Good News Is . . .

• The Conference Board reported that its index of leading economic indicators rose 0.6% in April, following no change in March, and a 0.1% increase in February. All components of the index except consumer expectations contributed to the rebound from an essentially flat first quarter. The Conference Board reported that despite a slow start in 2016, labor market and financial indicators, as well as housing permits, all point to a moderate growth trend continuing in 2016.

• Home Depot, Inc., the world’s largest home improvement retailer, reported earnings of $1.44 per share, an increase of 24.1% over year-earlier earnings of $1.16 per share. The firm’s earnings topped the consensus estimate of analysts by $0.08. The company reported revenues of $22.8 billion, an increase of 9.0%. Management attributed the company’s results to strong store traffic growth and improved operating margins.

• Two large oil services companies, FMC Technologies and Technip, have announced that they planned to merge in a $13 billion, all stock transaction. The deal is a sign of pressures on the oil services industry, which performs much of the oil field work for major energy companies around the world in order to reduce costs at a time of lower oil and gas prices. The deal, if completed, would combine Paris-based Technip, a major player in the demanding and costly work of developing offshore oil and gas fields, with Houston-based FMC, a maker of energy equipment. When combined, the two companies had revenue of $20 billion in 2015. A merger would result in a firm with more than 49,000 employees in 45 countries. The merged firm will be headquartered in London.

Citations

1. http://bit.ly/1fLVlWY – Conference Board
2. http://cnb.cx/1gct3xa – CNBC
3. http://thd.co/1qz0TAE – Home Depot, Inc.
4. http://nyti.ms/1Rdy0jd – NY Times Dealbook

Planning Tips

Guide to Finding Alternatives to Traditional Health Insurance Plans

With the cost of traditional health insurance plans rising rapidly out of financial reach for many Americans, people are seeking alternatives that provide some sort of assistance with potential medical bills—without bankrupting them (or breaking their monthly budgets). While it may appear more difficult to manage health care costs, below are a number of viable alternatives to traditional health insurance you might consider. It is a good idea to consult with your financial advisor to figure out the plan that is best suited to your personal health care needs and budget.

Primary care “membership” – One interesting alternative is a medical practice with a number of practitioners, or individual primary care physicians offering services based on a flat monthly fee, rather like a gym membership. For a monthly fee, individuals or families receive virtually unlimited routine medical care, including doctor visits, blood tests, and pediatric care—essentially all the usual services provided by a primary care physician. No sort of co-pay is required. Of course, such an arrangement does not cover surgery, hospital stays, or major injury treatment. To provide for such unforeseen catastrophic health care coverage, individuals can supplement their primary care “membership” with a high-deductible, relatively low-premium health insurance policy that is essentially designed only to cover catastrophic illness or injury.

Medical cost-sharing program – Another increasingly popular option exists in the form of medical cost-sharing programs such as Medi-Share. Medical cost-sharing programs are set up so members, who pay monthly fees much like insurance premiums, pool their resources and share each other’s medical costs as they arise. In place of a deductible, there is an “incident fee” for each medical event, which resembles a co-pay, that a member must first cover, after which the remainder of his or her incurred medical costs related to that illness or event are covered by the pooled fees paid by other members of the program. These programs often negotiate discounts with primary care physicians and medical facilities such as hospitals to keep costs down.

One attraction of cost-sharing programs is the monthly fees typically amount to less than what an individual or family would pay for traditional health insurance while still offering essentially the same level of reimbursement coverage of medical costs. Many of the available cost-sharing programs are from faith-based organizations that may exclude some costs, such as abortion or birth control, but other than such exceptions, the programs effectively function much like a regular insurance policy at a lower overall cost.

Health savings account – A health savings account (HSA) offers a tax-advantaged way of covering most ordinary medical expenses, such as doctor visits and medications, even including over-the-counter medications. Like the primary care monthly fee programs mentioned above, they are usually combined with high-deductible insurance coverage for catastrophic illness or injury. HSAs are available through many employers but may also be set up by individuals. Payments made into an HSA are pretax deductions, and there is no tax penalty for spending or withdrawing money from the HSA account as long as the money is used to cover medical expenses. The IRS limits maximum contributions to an HSA account. The annual limits as of 2016 are $3,350 for an individual and $6,750 for a family.

Medical services discount card – For those who prefer to operate on a “cash only” basis for medical costs and do not mind paying the tax penalty incurred under the Affordable Care Act (ACA) for not having insurance, there are a variety of medical discount cards available. Some discount cards can be used for physician or hospital services, others for prescriptions and some for both. Discounts offered with the use of the cards can be substantial, up to 80% or more. Some cards require a one-time membership fee, others a membership fee plus a small monthly fee, and still others are available completely free. There are typically restrictions on where the discount cards can be used, similar to those for a health care plan that requires using doctors within a specified network. One notable advantage of discount card plans is they can often be used for major dental services for which coverage under traditional health insurance policies is usually either severely restricted or very expensive. Discount cards can also be used in combination with high-deductible, catastrophic illness or injury insurance coverage.

Medical tourism– Medical tourism is a new trend in healthcare, and one of the fastest growing healthcare industries, where patients choose to travel outside the United States for medical procedures. The primary factor in medical tourism is cost. For the underinsured and uninsured, medical tourism provides choices in quality medical care at more affordable prices than they can get in the United States. Even with travel expenses included, patients still come out well ahead in out-of-pocket expenses, as procedures can be 30-to-90% less abroad, depending on the country and type of procedure being performed. While you can arrange all aspects of a trip abroad for medical services, many opt to use a medical tourism facilitator. Medical tourism facilitators assist patients, employers, and insurers in finding trusted overseas facilities. The advantage of using a facilitator is to access their expertise and general knowledge, and for referrals to accredited and certified foreign providers.

Citations

1. http://1.usa.gov/1dPxVVa – Centers for Disease Control & Prevention
2. http://bit.ly/1NCCl4N HealthNews.com
3. http://bit.ly/1U5GN8C – Investopedia
4. http://bit.ly/1N7jGwb – MedicalCostSharing.com
5. http://bit.ly/1sHld4K – FamilyWealthandLegacy.com