After months of rumors, GateHouse Media's parent company, New Media Investment Group, has agreed to buy newspaper publisher Gannett in a cash-and-stock deal reportedly worth some $1.4 billion. As part of the agreement, New Media will pay $6.25 per share in cash and 0.5427 New Media shares for every Gannett share, or the equivalent of $12.06 apiece. At closing, Gannett shareholders will own 49.5% of the combined business, with New Media shareholders owning the rest.
New Media is expected to realize between $275 million and $300 million in savings through the first 24 months of ownership. Layoffs will almost certainly create much of those savings for New Media. Over the past the few years, the company has been gobbling up newspapers across the country, then aggressively cutting costs to drive profits for Fortress Investment Group, which manages New Media's operations and is owned by Softbank.
The latest deal will combine GateHouse, which has some 400 papers and a combined circulation above 4.29 million, and Gannett, which has 215 newspapers including USA Today, the Detroit Free Press, The Tennessean and a number of other publications that have an overall circulation of 4.32 million, per The Wall Street Journal.
"The Gannett Board unanimously determined that this combination with New Media is in the best interests of Gannett shareholders, customers, audiences, and employees, providing significant and immediate value, as well as the ability to benefit from the upside potential of the combined company," said J. Jeffry Louis, who serves as chairman of Gannett's board of directors. "We see numerous opportunities to leverage the combined company's enhanced scale and financial strength to continue to drive growth in the digital future."
The business will be led by New Media chairman and CEO Michael Reed, while Gannett CFO Alison Angel will serve in the same role and newly appointed Gannett CEO Paul Bascobert will serve as CEO of the company's operating subsidiary. Gannett will retain its name and headquarters in McLean, VA, with Gatehouse assuming the Gannett name.
The news comes after Gannett rejected an offer from Digital First Media earlier this year to purchase the struggling business for $12-per-share, in part because of doubts about Digital First's ability to come up with financing. New Media had no such issue. Apollo Global Management has agreed to provide a five-year term loan worth some $1.8 billion to finance the cash component of the acquisition and pay off existing debt obligations for both businesses.
The good news?
"The term loan will be freely pre-payable without penalty, and the combined company is expected to have a strong cash-flow profile that will permit aggressive deleveraging," according to the press release announcing the deal.
Strong cash-flow hasn't exactly been synonymous with the journalism industry over the past decade. According to a study from the University of North Carolina, over 2,100 newspapers have closed from 2004 to June 2019. That's been due in large part to catastrophic declines in classified advertising and a digital advertising environment that's been dominated by Facebook and Google.
Don't expect that trend to change with a PE shop directing the country's largest newspaper chain.
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