Is Gannett The Next Media Company On The Spin Block?

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Just a day after Tribune (TRBAA) announced that it would be separating its publishing assets into a new company, speculation has already started about who will be the next media company to follow the breakup trend. With News Corp’s (NWSA) spinoff completed and Time Warner’s (TWX) on track, the WSJ tossed out Gannett’s (GCI) name as a possible option given that it too has a broad portfolio of media assets consisting of newspapers and TV stations. Like Tribune, Gannett also recently announced a large transaction, a $1.5b deal for Belo Corp (BLC), in which it greatly increased its TV portfolio.

The WSJ notes that the move is appealing because broadcasters trade at an average of 8x ’13 EBITDA, compared to just 5x for publishing businesses. As we have seen in the past, spins are a great way for companies to unload those ‘lesser’, slower growing assets. The difference in multiples likely reflects the broader industry trend of year over year declines in print.  This Bloomberg piece highlights a few other reasons for the recent media breakup trend including a lack of synergy between print and TV and ‘looming costs from newspaper pensions.’

In the past, Gannett has argued that there are numerous benefits to keeping everything in one company as it enables better relationships with advertisers. That may very well be, but the WSJ posits that ‘if the spinoffs of Tribune and others prove successful, shareholders may push Gannett to call it splits.’ Given what we have seen from activist investors over the past few years, I would have to agree with that sentiment, but it may not be so easy in this case. Berkshire Hathaway (BRK.A) remains a Gannett shareholder and despite owning a relatively small number of shares, I would bet that Mr. Buffett’s opinion would carry a lot of weight with shareholders.

Disclosure: Author is currently long share of Berkshire Hathaway, the B ones.

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