A copy of USA Today is displayed in a newspaper vending rack in San Francisco, California. (Justin Sullivan/Getty)
In the latest media spinoff, Gannett Company Inc. announced Tuesday that it would separate its publishing business—including flagship newspaper USA Today—from its broadcasting and digital outlets, and also acquire full ownership of Cars.com from Classified Ventures LLC for $1.8 billion in cash.
Gannett said the split would be achieved by a tax-free distribution of Gannett Publishing’s assets to shareholders in a move the company contends will strengthen both independent, publicly traded companies.
McLean, Va.-based Gannett is the largest newspaper publisher in the U.S., operating USA Today and 81 other local publications. It also owns Newsquest, a regional community news provider in the United Kingdom, according to a company news release.
As part of the deal, Gannett will buy the remaining 73 percent interest in Classified Ventures, the Delaware-based owner of Cars.com, a digital auto-shopping classified advertising site. The purchase includes Tribune Media Company’s entire 27.8 percent share of Classified Ventures. Gannet also is buying out the other partners in the joint venture, including A.H. Belo Corp; McClatchy Co., publisher of the Sacramento Bee; and Graham Holdings Co., former publisher of The Washington Post.
Gannett is financing the Cars.com purchase with cash, and by issuing approximately $650 million to $675 million in new senior notes. It will also borrow under the company’s revolving credit agreement. The Cars.com acquisition agreement is subject to regulatory and final board approvals and is expected to close by the fourth quarter of the year.
Wachtell, Lipton, Rosen & Katz is advising Gannett on its spinoff, while Nixon Peabody is providing counsel on its Cars.com buyout. Skadden, Arps, Slate, Meagher & Flom counseled Classified Ventures on the sale of Cars.com. Davis Polk & Wardwell served as counsel to Greenhill & Co. as financial adviser to Gannett.
The Gannett division of its print business from its broadcast and digital operations is just the latest in a string of breakups in the last several years as media conglomerates have offloaded slower-growing print publications from their broadcasting and digital operations.
Just this week, Tribune Media Company spun off its publishing arm, including the Chicago Tribune, into a separate company. Last week, Cincinnati-based E.W. Scripps Company and Journal Communications Inc. of Milwaukee announced a complex transaction in which they would merge their broadcast and digital operations, and spin off and then merge their print-based operations, creating two separate companies.
Earlier this summer, parent company Time Warner spun off its magazine publisher Time Inc. And 21st Century Fox and News Corp. split in June 2013. (Fox had been angling to acquire Time Warner itself but has since backed off its proposal.) According to Businessweek, A.H. Belo may have started the trend in 2007 with its divestiture of local news stations from its newspapers including the Dallas Morning News.
Gracia Martore, president and chief executive officer of Gannett said in a statement, “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. Cars.com doubles our growing digital business, while our recent acquisitions of Belo and London Broadcasting doubled our broadcasting portfolio.”
Gannett acquired broadcasting properties from Belo Corp. (which spun off its newspapers into A.H. Belo Corp.) and London Broadcasting in separate transactions. Last year, Gannett acquired Belo Corp. for a total of $2.2 billion, including cash and outstanding debt. In May, Gannett announced that it would buy six of London Broadcasting Company’s television stations in Texas for $215 million in cash.
Once the spinoff is completed, Martore will remain CEO of Gannett Broadcasting and Digital Company while Robert Dickey, current president of Gannett’s U.S. Community Publishing division, will head the publishing company. The spinoff is expected to be completed in 2015.
Gannett’s broadcasting business includes 46 television stations and would be the largest independent station group of major network affiliates in the top 25 markets, reaching approximately one-third of all television households nationwide, according to the company. Its digital business, in addition to Cars.com, also includes CareerBuilder, the largest online job classified site in the United States by traffic and revenue, which is majority-owned by Gannett.
Some media analysts say the stand-alone print outfits will be forced to fend for themselves in an era of declining newspaper ad revenues without help from broadcast operations and with few promising sources of growth despite low debt. Time Inc. did, however, manage to beat earnings estimates in its first quarter since separating from Time Warner, according to Bloomberg.
The Wachtell team advising Gannett on the spinoff was led by corporate partners Edward Herlihy, Igor Kirman and David Lam. Also on the deal were executive compensation and benefits partner Jeannemarie O’Brien, restructuring and finance partner Gregory Pessin and tax partner Joshua Holmes. The Wachtell associates on the matter included Matthew Danzig, Victor Goldfeld, Emily Johnson, Viktor Sapezhnikov and Michael Schobel.
Wachtell was outside counsel to Belo on its sale of TV stations to Gannett in June 2013, according to The American Lawyer.
Gannett’s financial adviser Greenhill & Co. turned to Davis Polk. The firm’s team included corporate partner Michael Davis and tax partner Neil Barr.
The Nixon Peabody team on the Cars.com piece of the action was led by John Partigan, partner and leader of the securities practice, and also included labor and employment partner Brian Kopp, antitrust partner Gordon Lang, securities partner Dan McAvoy, tax partner Christian McBurney and counsel Alycia Ziarno. Associates Tiana Butcher, Pierce Han and Erik Tanck also worked on the matter.
Nixon Peabody also is representing Gannett in connection with the financing of the Cars.com transaction, led by Partigan and M&A and securities partner Richard Langan. Associates Tiana Butcher and Pierce Han assisted.
Nixon Peabody advised on both the Belo and London Broadcasting deals with Gannett. (Paul Hastings also advised Gannett in the Belo deal last year.)
Skadden is legal adviser to Classified Ventures, with a team led by corporate partner Rodd Schreiber and including intellectual property counsel Jessica Cohen, intellectual property partner Stuart Levi, tax partner David Levy, antitrust counsel Brian Mohr, executive compensation and benefits counsel Alessandra Murata and antitrust partner Sharis Pozen. Skadden associates on the matter were Sara Bensley, Nickolas Gianou, Joseph Graves and Mariska Richards.
In March, Skadden advised Classified Ventures on its $585 million sale of Apartments.com to real estate data company CoStar Group, as reported by The American Lawyer.