After Breakup, Gannett’s Print and Broadcast Assets May Be Ripe For The Picking


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Alexa Davis | Forbes Staff | 8/5/2014

Gannett Tuesday became the latest media company to separate its publishing assets, which include USA Today, from broadcast and digital businesses. The move is the latest in a string of similar actions by the likes of Time Warner and News Corp., which have both separated slow-growing print segments from more profitable television divisions.

In another transaction, Gannett confirmed it will acquire full ownership of through a $1.8 billion purchase of the remaining 73% interest it does not already own in Classified Ventures LLC. The online car shopping site, which attracts 30 million visits per month, will further Gannett’s digital reach and provide another avenue for advertising revenue.

Tuesday’s announcements come as Gannett continues to reposition its business with a focus on broadcasting. The company recently completed a $2.2 billion acquisition of Belo, which doubled the company’s broadcast portfolio and made it the largest independent station group of major network affiliates in the top 25 markets. Now reaching one-third of all American television households with 46 television stations, Gannett is primed to continue the growth of its flourishing broadcast business.

“The bold actions we are announcing today are significant next steps in our ongoing initiatives to increase shareholder value by building scale, increasing cash flow, sharpening management focus, and strengthening all of our businesses to compete effectively in today’s increasingly digital landscape,” said Gracia Martore, CEO of Gannett.

Martore will remain atop the new, yet-to-be-named broadcasting and digital company, which will assume all of Gannett’s existing debt and leave the newly independent print company with minimal baggage. Management has also assured shareholders the split will not dilute the value of Gannett’s current 20-cent quarterly cash dividend.

The separation satisfies the cravings of investors who have expressed more interest in broadcast assets than in traditional newspapers, which have struggled with declining advertising revenues. As smaller and more palatable pieces to digest, the two companies will be better positioned to serve a natural shareholder base.

While the combined company may have been wary to pour capital into print operations that produced less upside for shareholders, the publishing business will now have greater cash flow to serve its interests. After receiving print asset stock options, new management will also be incentivized to maximize returns without the safety net of broadcast profits.

Joe Cornell, publisher of Spin-Off Research, said the divorce between Gannett’s two core businesses will spur greater investment in both arms and could lead to a merger or acquisition a year from now.

“There is a lot of buyout activity post separation in spin-offs. In fact, being purchased is four to five times more likely than for a typical S&P 500 company. I wouldn’t be surprised if publishing assets were picked off at some point down the road,” he said.

News of the breakup plan gave Gannett shares a modest 0.5% lift Tuesday morning, adding to year-to-date gains that have the stock up 16.6% in 2014. If recent history is any indication there may be more upside ahead as spinoffs and their former corporate parents have performed well in recent years. The Guggenheim Spin-Off ETF is up 175.9% over the last five years, compared with a 91.9% gain for the S&P 500.

Gannett’s announcement comes in what has been a banner year for spinoffs with 28 completed deals in the first six months, up from 18 in the prior year. Cornell says this momentum is likely to continue and expects 57 deals to be complete by the year’s end. (See: Record Year In Reach For Spinoffs Thanks to Activist Appetite, Sluggish Growth)

Advising on Gannett’s corporate breakup are Greenhill & Company and the law firm Wachtell, Lipton, Rosen & Katz. Greenhill and Citigroup, and legal advisor Nixon Peabody, are advising on the purchase of