Gannett announces acquisition of Journal Media in $280M deal
The publisher of USA Today pays a hefty premium to buy newspaper group that includes the Milwaukee Journal Sentinal, as well as the newspapers of E.W. Scripps
That didn’t take long: only an hour after The Wall Street Journal leaked that Gannett might buy Journal Media, Gannett announced that they would do just that.
Journal Media is the combination of the newspaper properties of Journal Communications and the print properties of E.W. Scripps. The two companies swapped media properties 190 days ago, with Scripps getting broadcast, and the new Journal Media getting print. The newspapers that joined the new company included The Commercial Appeal in Memphis, the Knoxville News Sentinel, and Ventura County Star in California. Now, of course, they will all be Gannett papers.
The deal that created Journal Media Group sounded like folly at the time – after all, who wants print these days? But the deal also wiped out the debt of Journal Communications and so was seen as favorable to both sides.
Gannett itself is the product of a newspaper spin-off, with the broadcast properties of Gannett now the company TEGNA and Gannett solely print newspapers. TEGNA also got the digital properties, forcing the Gannett newspapers to sign agreements with those properties that will lock in profits for TEGNA and likely prevent Gannett from being very innovative in the area of digital classifieds. Gannett’s papers include The Arizona Republic and The Indianapolis Star, among many others – and with the properties added, will now be in 106 markets across the U.S.
Gannett executive Robert Dickey recently admitted that the publisher was on the hunt for additional newspaper properties, with the target being markets of over 1 million. Milwaukee and a couple of the other Journal Media properties fit the bill, when you look at their metropolitan areas. Other logical targets would be some of the properties owned by Digital First Media, especially their California groups, assuming DFM owners would sell their assets piecemeal.
The sale price is a hefty premium over Journal Media’s current market cap, but that value is far below what the papers are generating in revenue. Gannett says the deal adds $450 million in revenue, so even a 1X multiple would put the sales price far above what Gannett is paying – such is the value of print today.
The added income, though is negligible, $60 million EBITDA. But the first earnings report for Journal Media – possibly the only earnings report ever for the company – showed net income of only $3.7 million. The new company was in the black, but barely.
What does that mean for the acquired properties? Staff cutbacks? Consolidated printing? It will be a nervous time for the 3.600 employees who work at these newspapers, most of which will be on their third owner in less than a year.
Here is the Gannett announcement:
MCLEAN, Va. & MILWAUKEE – October 7, 2015 — Gannett Co., Inc. and Journal Media Group, Inc. (NYSE: JMG) announced today that they have entered into a definitive merger agreement under which Gannett will acquire all of the outstanding common stock of Journal Media Group for approximately $280 million, net of acquired cash.
Under the terms of the transaction, which was unanimously approved by the boards of directors of both companies and is subject to Journal Media Group shareholder approval, Journal Media Group shareholders will receive cash of $12.00 per share in cash. Based on the closing price of Journal Media Group on October 7, 2015, this represents a premium of 44.6%. Gannett will finance the transaction through a combination of cash on hand and borrowings under Gannett’s $500 million revolving credit facility.
Robert J. Dickey, president and chief executive officer of Gannett said, “The publications of both Gannett and Journal Media Group have a rich history, a commitment to journalism, and a dedication to informing and being active members in the communities we serve. Our merger will combine the best of each of our organizations to create a journalism-led, investor-focused company which will provide substantial value to the shareholders of both companies. This transaction is an excellent first step in the industry consolidation strategy we have communicated to our shareholders and is a good example of the value-creating opportunities we believe are available.”
“We would also like to welcome the outstanding leadership, journalists, sales staff and other employees of Journal Media Group to the Gannett family. Our combined company will be an industry leader, dedicated to the local communities we serve, committed to generating value for shareholders and empowering communities to connect, act and thrive,” Dickey concluded.
“This transaction marks a critical next step in the transformation of our industry as we build local media brands that matter at a time when operational scale is a competitive advantage,” said Tim Stautberg, president and chief executive officer of Journal Media Group. “Both Journal Media Group and Gannett are guided by a vision of strengthening lives and communities, and we’ll be better stewards in our local markets by sharing ideas, content and best practices among our new and larger family.”
The combination of Journal Media Group and Gannett will create a portfolio of 106 local markets in the U.S. and will result in a combined digital audience of more than 100 million unique domestic visitors a month. The acquisition will also enable the combined company to realize significant operating efficiencies. The properties in Journal Media Group’s markets will benefit from the consolidated functions Gannett has established over the last several years. Additionally, the regional proximity of some of the Journal Media Group markets will also enable Gannett to further utilize its printing and distribution assets.
- Adds approximately $450 million to Gannett’s annual revenues.
- Adds approximately $60 million of adjusted EBITDA, including over $10 million of immediately available synergies.
- Opportunity for approximately $25 million of additional operating synergies to be fully realized over the next two years via the consolidation of corporate and administrative operations, integration with the Gannett shared service centers and consolidation of certain printing and distribution assets in multiple adjacent markets.
- Immediately EPS accretive: approximately $0.10 – $0.15 per share in the first full year and $0.20 – $0.25 in the second year.
- Adds 15 dailies and 18 weeklies in 14 local markets, in nine states; includes key markets such as Milwaukee, WI and Memphis and Knoxville, TN.
- Adds daily and Sunday circulation of approximately 675,000 and 950,000, respectively.
- Adds more than 10 million unique digital domestic visitors a month.
- Leverages Gannett’s existing industry-leading content and national USA TODAY brand, enables the integration of Journal Media Group properties onto Gannett’s Digital Platform, and delivers additional scale for National-to-local strategy.
The transaction is not expected to disturb the tax-free treatment of the prior transactions between The E.W. Scripps Company and Journal Communications, Inc. whereby Journal Media Group has previously agreed to indemnify Scripps for the adverse tax consequences emanating from its actions or failures to act following the closing of that transaction. Journal Media Group, prior to entering into the merger agreement with Gannett, has delivered an unqualified tax opinion from its law firm to Scripps, which opinion Scripps has deemed to be acceptable in form and substance.
The receipt of cash for shares of Journal Media Group will be a taxable transaction for U.S. federal income tax purposes. In general, a holder of Journal Media Group common stock will recognize a gain or loss in an amount equal to the difference between the amount of cash received in the merger and the holder’s adjusted tax basis in the shares.
This transaction is subject to customary closing conditions, including, approval of the merger by holders of a majority of the outstanding shares of Journal Media Group common stock and antitrust regulatory clearance. The transaction is expected to close in the first quarter of 2016.
Stephens Inc. is acting as financial advisor to Gannett, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Gannett. Methuselah Advisors is acting as financial advisor to Journal Media Group, and Foley & Lardner LLP is acting as legal advisor to Journal Media Group.