The company will spin off the newspaper business to shareholders and will pay $1.8 billion for the 73% stake that it does not own in joint venture Classified Ventures, which owns Cars.com.
Gannett CEO Gracia Martore described the transactions as a "one-two punch" in a Monday conference call. Shares of Gannett gained 11 cents, or 0.3%, to $34.43 on Tuesday morning.
Following the deal, Gannett's newspapers will be "virtually debt free," Martore said. The TV stations and digital media assets such as Cars.com will have about $4.6 billion in debt. Martore said the deals would provide the businesses with greater strategic freedom. "Each will be able to make acquisitions in consolidating industries," she told investors.
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Gannett is paying 11.7 times projected 2014 Ebitda for Classified Ventures, which is a joint venture with Tribune Media (TRBAA) ,McClatchy (MNI) - Get McClatchy Company Class A Report, Graham Holdings (GHC) - Get Graham Holdings Co. Report and A. H. Belo (AHC) - Get A.H. Belo Corporation Class A Report. The payout comes to 9.2 times projected 2015 Ebitda.
The deal values Classified Ventures as a whole at $2.5 billion, or 14.6 times 2014 Ebitda, according to press releases from Tribune and A.H. Belo.
Publishing spins are in vogue among media groups.
On Monday, Tribune Media completed a split with its newspaper group, which owns the Chicago Tribune and Los Angeles Times. Tribune Publishing (TPUB) began trading on the New York Stock Exchange on Tuesday, dropping 57 cents, or 2.6%, to $21.56.
Time Warner (TWX) divested Time (TIME) magazine publishing business in June. News (NWSA) - Get News Corporation Class A Report broke away from 21st Century Fox (FOXA) - Get Fox Corporation Class A Report in June 2013. Media General MEGsold most of its newspapers to Warren Buffett's Berkshire Hathaway (BRK.A) - Get BRK.A Report in 2012.
For the purchase of the Classified Ventures stake, Gannett retained Greenhill, Citigroup (C) - Get Citigroup Inc. Report and a Nixon Peabody team including John Partigan, Dan McAvoy, Christian McBurney, Brian Kopp and Gordon Lang.
Moelis (MC) - Get Moelis & Co. Class A Report bankers Navid Mahmoodzadegan, John Momtazee and Carlos Jimenez advised Classified Ventures, which received counsel from Skadden, Arps, Slate, Meagher & Flom LLP lawyers Rodd Schreiber and Joseph Graves.