NEW YORK (TheStreet) -- USA Today and Detroit Free Press owner Gannett (GCI) could be facing a headwind to its $1 billion deal to acquire media publishing company Tronc (TRNC), as banks financing the transaction have backed out, sources told Bloomberg.

Bloomberg's deal reporter Alex Sherman broke the story for the publication and appeared on this afternoon's "Bloomberg Markets: America" to discuss the trouble facing the merger.

BloombergTV's Scarlett Fu pointed out that this all has to do with the transaction's valuation.

"Yeah, these are deteriorating businesses and I think banks sort of got cold feet," Sherman said. "To be honest, from my sourcing throughout this process, a lot of the bigger banks actually did not want anything to do with financing this deal."

Several banks at first had at least nominally agreed to finance the deal, but then backed out at the last minute. Gannett's stock is tumbling this afternoon on a weaker than expected third quarter earnings report. Tronc stock is plummeting on the Bloomberg story.

"They're newspaper companies and it's no surprise that newspapers, the businesses are not doing well," Sherman said. Fu responded by asking if bank financing is the only option.

"This has been a very unusual process, where Gannett has twice raised its offer for Tronc and yet Michael Ferro, the controlling shareholder of Tronc, kept pushing for a higher and higher price. He finally got one that he was okay with, about $18.75 a share. And yet he basically pushed the price so high that banks were unwilling to finance it," Sherman said.

He mentioned the possibility of there being some regulatory concern, as regulators tend to look harder at deals with more than a six times multiple. But he continued that it was his understanding, from speaking with sources, that the deteriorating business made banks uncomfortable with the high price.

Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate GANNETT CO INC as a Sell with a ratings score of D. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been unimpressive growth in net income over time.

You can view the full analysis from the report here: GCI

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