Wednesday, June 12, 2013

What's the future of GCI's digital growth engine?

As Tribune Co. draws closer to a possible sale of its newspapers and related properties, a newly published report offers a glimpse at the impact on Gannett and its crucial investments in digital assets it co-owns with Tribune.

Those assets are Classified Ventures and CareerBuilder. In particular, the employment site is key because it's expected to lead GCI's digital revenue growth this year and perhaps beyond.

Tribune owns 28% of Classified Ventures, which includes and -- two leading classified advertising sites. And it owns 31% of CareerBuilder. Those are among Tribune's most valuable assets, worth as much as $700 million, according to last night's report in The Wall Street Journal. (Tribune's eight newspapers, including The Los Angeles Times and Chicago Tribune, are worth perhaps $1 billion, according to the WSJ.)

GCI, meanwhile, owns 24% of Classified Ventures, and 53% of CareerBuilder, according to regulatory filings. That controlling interest in CareerBuilder allows GCI to include all of CareerBuilder's revenue on its books -- accounting for a significant portion of GCI's overall digital revenue.

GCI could be among the bidders for Tribune's stakes in Classified Ventures and CareerBuilder if they were sold separately from the newspapers. Indeed, back in February, CEO Gracia Martore told Wall Street analysts that she would be interested in upping GCI's ownership of CareerBuilder.

'Running the math'
"We think it's a great asset," she said during the fourth-quarter earnings conference call. "But for us to invest further, it merely comes down to a question of running the math and seeing whether it makes economic sense for us to do that, and it achieves the kinds of return hurdles that we have for investments that we make."

GCI bought its controlling CareerBuilder interest in an earlier deal with Tribune in November 2008, paying $135 million for an additional 10% as Tribune slipped into bankruptcy. "We were able to get it at a very attractive price, given the backdrop of the economy at that point and the seller's need to raise some cash at that particular moment," Martore said.

But now, with a strengthening economy, CareerBuilder is worth more -- and so, too, is Classified Ventures. Plus, GCI has other competing interests. It's committed to returning $1.3 billion to shareholders by 2015 in bigger dividends and stock buybacks. Also, GCI has been expanding the USA Today Sports Media Group through acquisitions. And there are other potential investments as television stations are offered for sale.

GCI had $143 million in cash at the end of the first quarter, down from $175 million in the preceding quarter.

To be sure, Martore might be content to keep GCI's ownership in Classified Ventures and CareerBuilder unchanged -- instead taking on new co-owners should Tribune sell its stake in the two digital companies with or without the eight newspapers. If nothing else, a Tribune deal would provide a fresh valuation on GCI's digital investments.

Kushner and Koch
Competing bidders for the two digital companies include greeting-card magnate Aaron Kushner, who led a group that bought the Orange County Register and six other Freedom Communications dailies last year, the WSJ says. Koch Industries, which last week said it was is looking into the possibility of acquiring newspapers, is also a possible Tribune bidder. (One of GCI's directors, Neal Shapiro, has a more than passing interest in one of Koch's owners, David Koch.)

Whatever the outcome, it's hard to overestimate the importance of any deal. GCI is repositioning itself as a 21st century media company, with digital accounting for a growing share of overall revenue -- 28% in the first quarter, when all of CareerBuilder's revenue is counted on GCI's books.

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