CONFERENCE CALL

Gannett Split Indicative Of New Media Order

The split will allow Gannett to avoid FCC newspaper-broadcast crossownership restrictions, enabling it to take advantage of acquisition opportunities in each sector. "It was difficult to look at certain acquisition opportunities we found attractive because of crossownership prohibitions," Gannett CEO Gracia Martore told investors and analysts.

Gannett’s move to split into two companies — one encompassing broadcasting and digital, the other publishing — is the latest such move in a trend reflecting current economic and regulatory realities.

In the past month alone, E.W. Scripps and Tribune Co. have spun off broadcast and publishing operations. Their moves follow the Media General’s 2012 sale of most its newspaper operations, a similar move by Freedom Communications in 2011, and Belo Corp.’s split in 2008.

Newspapers have taken it on the chin with the advent of the Internet and the shift of classified advertising, once a newspaper mainstay, to the digital platform.

“We’ve made huge strides in stabilizing and revitalizing the publishing business” in the last two and half years, Gannett CEO Gracia Martore said during this morning’s investor-analyst conference call.

“The time is now right to create two separate companies.”

The split will allow Gannett to avoid FCC newspaper-broadcast crossownership restrictions, enabling it to take advantage of acquisition opportunities in each sector.

BRAND CONNECTIONS

“There will be fewer regulatory obstacles in two consolidating industries,” Martore noted, adding that, “Both companies will continue to collaborate on cross-platform sales.”

Once the split is completed — which is projected to be mid-2015 — Martore will become CEO of the as-yet unnamed broadcast-digital company and Robert Dickey, current president of the U.S. Community Publishing division, will become CEO of the publishing company.

Gannett’s acquisition of the 73% of Cars.com that it did not already own further reflects the combination of digital and broadcast operations that has characterized broadcasting over the last several years.

“With Cars.com, we’ll double the size of our digital business,” Martore said.

As the FCC has increasingly focused on expanding broadband capacity in the U.S., broadcasters and newspaper publishers have scrambled to come up with ways of improving the economics in what many consider mature sectors.

Increasing economies of scale through consolidation is one such path. But with the FCC’s stricter enforcement limiting broadcast duopolies and prohibition of big-media companies owning television stations and newspapers in the same market that has become increasingly tough.

“It was difficult to look at certain acquisition opportunities we found attractive because of crossownership prohibitions,” Martore said.

She noted that Gannett “has been fortunate to do in one year two just fantastic transactions” — the $2.2 billion Belo Corp. acquisition and the $1.8 billion Cars.com deal announced today.

Even with that, the broadcasting company will still carry a lower leverage — slightly above 4X — than many of its peers, she said.


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