Gannett is the basically the last media company to the spinoff party. The past few years has witnessed numerous similar style spinoffs including Tribune Media/Tribune Publishing, Time Warner/TIME Inc, EW Scripps/Journal Media Group and 21st Century Fox/News Corp. In other words, there should be a good set of comps on both sides of the transaction to help assess this situation.
The capital structures are a closely watched decision with these types of spins and the current $4+b of debt will remain on the parent company’s (TEGNA’s) books. Additionally, TEGNA will pay out a dividend of $0.56 per share and plans to authorize a $750m share repurchase program. If all of the debt is on the parent company, then that means New Gannett will be launched ‘virtually debt free’, which should free up cash to grow the business and allow management some breathing room. It’s not all available for growth though, as the company has already committed to a dividend of $0.64 per share and a $150m share repurchase program. It will have to carefully manage its cash flow and investor expectations given the relatively challenging environment.
Despite the challenges, leadership – Gracia Martore at TEGNA and Robert Dickey at Gannett – is positively giddy about the coming separation (big surprise there):
Gracia Martore, President and CEO of Gannett, will serve as President and CEO of TEGNA upon completion of the separation. She said, “In just three weeks, we will create two industry leaders that will benefit greatly from enhanced strategic, operating, financial and regulatory flexibility as independent companies. We believe strongly that this transaction will enhance performance, unlock shareholder value and give investors access to more targeted investment opportunities with trading valuations that better reflect the distinctive characteristics and growth profiles of both companies.”
Robert Dickey, who currently serves as President, Gannett U.S. Community Publishing, will become President and CEO of new Gannett following the close of the separation. Mr. Dickey said, “We are incredibly excited about the opportunities this transaction creates for our shareholders, as well as our 19,600 employees who together serve our more than 110 local U.S. and UK communities each and every day. We’ve made great strides in revolutionizing our content and delivery methods through our widely successful all access content subscription model and digital initiatives, as well as by leveraging our iconic USA TODAY brand to create USA TODAY local content editions. We look forward to accelerating this strong progress and delivering shareholder value as a more nimble and highly focused independent company.”
Ms. Martore added, “Like new Gannett, TEGNA will benefit from impressive scale and new opportunities following the separation. TEGNA will be one of the largest and most geographically diverse broadcasters in the U.S. – reaching approximately one third of all television households nationwide, and will house leading digital businesses CareerBuilder and Cars.com. These tremendous advantages, coupled with the enhanced focus and flexibility afforded to TEGNA, are expected to drive strong margins, long-term, sustainable growth and value creation.”
There will be a when-issued market following the date of record and the company will also host an investor day on June 22nd offering a more in depth look at the companies.
Earlier this year, Carl Icahn (~6.6% ownership) backed the spinoff plan, but seemed to want the company to put itself up for sale almost immediately. As part of his plan, the company would adopt extraordinarily friendly shareholder provisions. Mr. Icahn eventually backed off of his demands and director nominations, but the company did agree to ‘annual elections for directors, a limited life span for anti-takeover “poison pill” plans, special meetings that can be called with the support of 20 percent of the company’s shares.’ This could be an interesting situation to watch right out of the gate!
Disclosure: Author holds no position in any stock mentioned.