Having invested $70.5 million in Tribune Publishing Co., Patrick Soon-Shiong said the Los Angeles Times is poised to become “the Harry Potter of news.”
As part of his deal for a 12.9 percent stake in the company, Soon-Shiong’s NantWorks has licensed more than 100 artificial intelligence and machine vision technology patents to Tribune, technologies he believes can transform the digital news operations of the Chicago company and its Los Angeles flagship.
But technology analysts question whether those tools pack enough magic to turn the fortunes of the beleaguered newspaper company.
“The promise of AI is that it will deliver much more personal and meaningful content. But I don’t see any media organizations really investing the kind of time, effort, and money into R&D that would be required to make any of this happen,” said Amy Webb, Washington, D.C.-based founder of the Future Today Institute.
Still, Soon-Shiong did not amass a fortune estimated at $15.4 billion without taking a few fliers, and he seems to be committed to bringing Tribune into the 21st century.
“He’s in there for the long haul,” said Lloyd Greif, president and chief executive at downtown L.A. investment bank Grief & Co., referring to the three-year lockup terms associated with Soon-Shiong’s purchase.
“There’s a perception that there’s upside to this stock, not just in a sale to (Gannett Co.) but perhaps in the execution of Patrick’s vision.”
Soon-Shiong’s all-cash acquisition of 4.7 million Tribune shares through his Nant Capital on May 23 coincided with the publisher’s rejection of USA Today owner Gannett’s latest offer to acquire the company. Gannett said on May 16 it would pay $15 a share for all outstanding shares and assume Tribune’s $390 million debt, for a total transaction value of approximately $864 million.
Soon-Shiong’s deal and the promise of his technology did little to quell shareholder unrest.
Its shares, which had been trading near $15 before Soon-Shiong’s deal came public, fell below $12 in its wake. And Oaktree Capital Management, which became Tribune’s third-largest shareholder after the Nant Capital investment (Nant Capital holds just 4,000 more shares than Oaktree), called for Tribune’s board to negotiate and close a transaction with Gannett. St. Louis investment firm Towle & Co., which owns 1.4 million shares, joined in the plea.
Leadership at Towle, whose holdings were diluted by Soon-Shiong’s investment, issued a strongly worded letter to the Tribune board alleging that it has “abandoned its fiduciary responsibility of maximizing shareholder value” and that they are “greatly perplexed at (Tribune’s) unreasonable, capital destructive position.”
Soon-Shiong’s purchase makes him the second-largest shareholder behind tech entrepreneur Michael Ferro, Tribune chairman. Together, they hold about 30 percent of the company.
A South Africa-born surgeon and medical researcher, longtime L.A. resident Soon-Shiong, 63, has had an interest for some time in investing in the paper and protecting it as an institution.
“It’s one of our national treasures,” Soon-Shiong said last week of the Times, founded in 1881. “What’s exciting now is the real opportunity for the L.A. Times to transition to digital.”
Soon-Shiong, who will become vice chairman of the company after its June 2 shareholder meeting, said his accomplishments in technological advancements can help save Tribune and boost the standing of the newspaper, although he has been quiet on his personal ambitions there.
“Time will tell whether he’s right or Oaktree is right,” said analyst Greif. “But this preserves his opportunity to be the publisher of the Times in the future.”
Though Tribune’s governance rules dictate that Soon-Shiong won’t be able to vote his shares until its 2017 annual meeting, he said he will informally participate in the June shareholders meeting, scheduled to take place in downtown Los Angeles. He will make a presentation about his technologies, which were developed for use in medical settings but could be used to create a more interactive, video-focused way for readers to consume news content.
Under terms of the deal, Tribune will have access to Soon-Shiong’s digital production space NantStudio in Culver City. Tribune issued NantStudio 333,333 shares of common stock and will be entitled to retain the first $80 million in revenue derived from the licensed patents royalty free, after which Tribune will pay NantWorks a 6 percent royalty.
It was this technology Soon-Shiong said gave Tribune the opportunity to become the “Harry Potter of news.”
Wizard solutions are certainly needed as times are tough for digital-first and legacy media companies. The New York Times announced cutbacks last week as did Shane Smith’s Vice Media, which said it would lay off more than a dozen employees.
“The gut-wrenching transformation of newspapers to the digital age is complex and difficult,” Towle said in its letter to the Tribune board. “Our concerns persist that Tribune’s revenue and earnings will decline in coming quarters.”
Meanwhile Tribune’s chief executive, Justin C. Dearborn, is relocating from Chicago to Los Angeles. According to a company filing with the Securities and Exchange Commission, he is being paid $262,000 for relocation expenses.
Jonathan Ponciano contributed to this report.
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