Gannett shut out other interest in Cars.com
Gannett's (NYSE:GCI) negotiated price and terms for Cars.com is understood to have headed off continued unsolicited interest from other parties.
Yesterday, Gannett announced that it paid USD 1.8bn for the 73% it did not own of Classified Ventures, the parent company of used car listings provider Cars.com.
The deal values the total company at USD 2.5bn. Classified Ventures is co-owned by Tribune Media Company (OTC:TRBAA), which owns 28%, The McClatchy Company (NYSE:MNI), Graham Holdings Company and A. H. Belo Corporation (NYSE:AHC).
The Wall Street Journal reported on 9 March that the consortium was exploring a sale of Cars.com, seeking a valuation between USD 2.5bn and USD 3bn. At the time, a Bloomberg report indicated that Cox Enterprises and Apax Partners, owners of similar assets in other markets, were interested in a purchase.
In a statement to this news service, John Dyer, Cox Enterprises’ president and CEO, said: “We're committed to providing the world's largest digital automotive marketplace, and we will continue to play a critical role in the industry for dealers, manufacturers and car shoppers.”
The terms of the sale allow the sellers to continue to purchase Cars.com’s listings at preferred wholesale rates for five years in their local markets.
Gannett simultaneously announced the purchase and the spinoff of its newspaper assets, which create separate broadcast and publishing entities. Cars.com will be absorbed by the broadcast company. Gannett’s current market cap is around USD 7.7bn.
Though Gannett stock was up by 7% in premarket trading on news of the publishing spinoff, consistent with the rewards other companies have had for separating strong, growing broadcast operations from weakening print assets, the shares opened with only a 3% gain. The stock closed 1.3% lower on the day, at USD 33.87.
One industry banker said Wall Street was reacting negatively to the fact that Gannett paid so much for Cars.com, a figure he estimated to be 21 times cash flow. The banker said that observers perceive the price as “extraordinarily” expensive. Cars.com is a very attractive asset, said the banker, but added that “whatever multiple expansion there should have been on the split was given back in paying that kind of premium.”
During a conference call with analysts and investors, Gannett CEO Gracia Martore indicated that the company made a different calculation. She said that based on "the 2014 pro forma incremental EBITDA, estimated, we're paying USD 1.8bn and we're getting about USD 155m in incremental estimated EBITDA for 2014. And if you do that math, it implies a multiple of 11.7 times."
A station broker said that Gannett's move was not a reaction to the frenzied M&A environment for TV stations. Rather, this broker said, its decision to separate its newspapers from its broadcast outlets was probably inevitable as soon as the company announced its USD 1.5bn acquisition of Belo Corporation in June 2013. That USD 2.25bn deal, which included Belo's 20 TV stations, nearly doubled the size of Gannett's portfolio.
The broker pointed out that with 43 stations and 25% US audience penetration, Gannett had little room to grow within the constraints of regulation prohibiting cross-ownership of newspaper and television assets. This left a spin as the only reasonable way to continue making acquisitions, the broker said.
In the largest markets that Gannett is in, there are few tuck-in acquisition opportunities, the station broker and a banker said. Gannett may therefore be looking to add stations in some of its mid-sized and smaller markets.
Gannett declined requests for comment.