Gannett just announced it's closed the $2.2 billion purchase of 20-station TV company Belo to focus on more profitable broadcasting over declining newspapers -- one of the media giant's biggest strategic shifts since Frank Gannett founded the company in 1906 with a single paper in Elmira, N.Y.
Announced six months ago, the takeover is expected to bolster revenue and earnings while Gannett's single-biggest revenue source, newspaper ads, continues its seven-year-long decline amid stalling digital growth.
But it may only take Gannett out of the fire and back into the pan for a relatively short period.
Local broadcasting is just steps behind newspapers in losing ad revenue to digital rivals like Twitter and Facebook. It ties the company more than ever to the cyclical fortunes of TV, which roller coasters every other year with political and Olympics advertising. And it will likely increase Wall Street's pressure on CEO Gracia Martore to spin off the 100 daily U.S. and U.K. newspapers into a separate company to fend for themselves.
The purchase nearly doubles Gannett's broadcasting division to 40 stations from 23, and gives it entree to lucrative markets in Texas and the Pacific Northwest. Once fully integrated, broadcasting would account for more than half of earnings. In 2012, a record year for the division, broadcasting accounted for 17% of company-wide revenue of $5.4 billion.
The deal is being completed in two stages, Gannett said in a separate press release earlier today. Three of Belo's stations, in St. Louis and Phoenix, are being sold to Meredith Corp. for $408 million to satisfy U.S. Justice Department concerns that Gannett's takeover would be anticompetitive, driving up local advertising prices.
The deal will add about 2,700 employees to Gannett's 30,000 worldwide. And it almost certainly puts broadcasting president Dave Lougee, 54, into the pole position to succeed Martore, who faces mandatory retirement when she turns 65 in September 2016.
Investors bid up shares
Wall Street has rallied around the deal, contributing to a 34% rise in the company's stock the day it was announced -- an unusual reaction because shares of acquiring companies typically fall amid investor uncertainty over the outcome. That led to some grumbling among Belo shareholders that management was selling for too little.
Since the takeover was announced, Gannett's stock has vaulted 40% vs. a smaller 13% gain in the broader S&P 500 index.
Under the deal, Gannett will take outright ownership of only 15 of Belo's 20 stations. Four other stations, including ones in Phoenix and Portland, Ore., will be spun off to two newly created companies led by former TV executives. A fifth station, in St. Louis, will be divested under a deal with the U.S. Justice Department's antitrust division.
Of the four stations being sold to new companies, Gannett will help with financing, and will provide lucrative back-office services for those two companies under long-term contracts that will keep them close to Gannett's fold. That structure allowed the deal to comply with federal regulations limiting how many TV and radio stations one company can own in any single market.
The takeover includes $1.5 billion in cash plus assumption of $715 million in debt. It's one of the biggest in Gannett's history, rivaling the $2.6 billion cash purchase in 2000 of Central Newspapers, which included The Arizona Republic and The Indianapolis Star. And it comes as Gannett has recently stumbled in its drive to become a digital powerhouse.
Today's announcement moves Gannett into the next equally daunting phase: integrating Belo into broadcasting, which includes trimming Corporate expenses and negotiating more favorable retransmission agreements to hit earnings targets. That could take up to three years, Gannett has said, a time frame that would coincide with Martore's expected retirement, making the deal one of the capstones in her 28-year Gannett career.
Related: Gannett's far-flung businesses. Plus: Belo at a glance.
But it may only take Gannett out of the fire and back into the pan for a relatively short period.
Local broadcasting is just steps behind newspapers in losing ad revenue to digital rivals like Twitter and Facebook. It ties the company more than ever to the cyclical fortunes of TV, which roller coasters every other year with political and Olympics advertising. And it will likely increase Wall Street's pressure on CEO Gracia Martore to spin off the 100 daily U.S. and U.K. newspapers into a separate company to fend for themselves.
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| Lougee |
The deal is being completed in two stages, Gannett said in a separate press release earlier today. Three of Belo's stations, in St. Louis and Phoenix, are being sold to Meredith Corp. for $408 million to satisfy U.S. Justice Department concerns that Gannett's takeover would be anticompetitive, driving up local advertising prices.
Investors bid up shares
Wall Street has rallied around the deal, contributing to a 34% rise in the company's stock the day it was announced -- an unusual reaction because shares of acquiring companies typically fall amid investor uncertainty over the outcome. That led to some grumbling among Belo shareholders that management was selling for too little.
Since the takeover was announced, Gannett's stock has vaulted 40% vs. a smaller 13% gain in the broader S&P 500 index.
Under the deal, Gannett will take outright ownership of only 15 of Belo's 20 stations. Four other stations, including ones in Phoenix and Portland, Ore., will be spun off to two newly created companies led by former TV executives. A fifth station, in St. Louis, will be divested under a deal with the U.S. Justice Department's antitrust division.
Of the four stations being sold to new companies, Gannett will help with financing, and will provide lucrative back-office services for those two companies under long-term contracts that will keep them close to Gannett's fold. That structure allowed the deal to comply with federal regulations limiting how many TV and radio stations one company can own in any single market.
The takeover includes $1.5 billion in cash plus assumption of $715 million in debt. It's one of the biggest in Gannett's history, rivaling the $2.6 billion cash purchase in 2000 of Central Newspapers, which included The Arizona Republic and The Indianapolis Star. And it comes as Gannett has recently stumbled in its drive to become a digital powerhouse.
Today's announcement moves Gannett into the next equally daunting phase: integrating Belo into broadcasting, which includes trimming Corporate expenses and negotiating more favorable retransmission agreements to hit earnings targets. That could take up to three years, Gannett has said, a time frame that would coincide with Martore's expected retirement, making the deal one of the capstones in her 28-year Gannett career.
Related: Gannett's far-flung businesses. Plus: Belo at a glance.
You've got some errors around Phoenix in the second phase of the piece
ReplyDeleteCould you be more specific? I've re-read the press release, but don't see where I've deviated from the text.
DeleteThe whole bit about the spin-offs is wrong in re: Phoenix, since the stations are being sold. This changed form last week. You are correct above and incorrect below.
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DeletePay raises and jobs will be sacrificed once again.
ReplyDeleteAny guesses as to when Gannett will fire all of it's Photographers?
ReplyDeleteFirst quarter 2014.
DeleteWhat makes you think so?
DeleteI thought we are a state-of-the-art, forward leaning digital company?
ReplyDeleteThis comment has been removed by a blog administrator.
ReplyDeleteLocal TV is a LONG way from being an albatross. In fact, it's still one of the best investments going. Whatever "local" becomes will evolve out of TV, not out of the "patch" work Internet.
ReplyDeleteA sound investment.
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DeleteLOL. Oddly refreshing, though, to see that obdurate denial is not exclusive to ink-stained wretches.
DeleteBroadcast has retransmission agreements which will continue to bring in huge profits. Something print never had. With the addition of Belo, Gannett is now poised to exert more pressure over Cable and Satellite companies for even bigger profits.Broadcast is far from dead.
Delete10:15 AM - More denial and hubris. Broadcast, cable, and satellite all are based on laughably obsolete technology and business models.
DeleteLet the fate of your print cousins be a warning unto you. The tsunami of creative destruction will arrive without further warning.
The Butterfly Project will save us (lol!!!!) My informal survey of the public says "No." My paper plans to load up its A Section with news from its staffers and the papers it supports under Gannett's Regionalization Scheme.
ReplyDeleteThat will not work. People want to read exclusively about their local area. They don't want to read news about other areas. I give the Butterfly Project three months at my site before its wings are mercifully clipped. That is sad, however, as more jobs are sure to be clipped. Why not just load up the paper with news about its local area?
People are sick and tired of Gannett Gimmicks!!! Why not just concentrate on local news, sports, etc., and can the gimmicks?? !! That way, a lot fewer people will be canned!!!!!
"Why not just load up the paper with news about its local area?"
DeleteBecause you and your colleagues are lazy bums.
Hey 5:34 p.m.: I am far from lazy. It's clear you can't read and are probably a lousy writer. My idea is to load up exclusively on local news from my paper's coverage, meaning I want to produce more local news and not rely on other papers to fill up my newspaper.
DeleteEvery newspaper I read has a nation and international section. I have never seen a daily that only has local news.
DeleteUnless and until an activist acquires enough shares to get the board's attention (something that has not been disclosed to date), there is no outside "pressure" to restructure anything.
ReplyDeleteAlso, analysts don't "represent" investors. That would be a conflict of interest.
How long will it take to "Gannettize" these stations? That is to fire anyone over 50 and anyone who is competent.
ReplyDeleteGannett made the mistake of appointing Dubow CEO after McCorkingdale left. Does it make the same mistake with Loughee, or do we get another beancounter in Harker, who has no operational experience?
ReplyDeleteLoughee seems far brighter than Dubow, but that's not saying much.
I am kinda shocked the Belo purchase is getting negative comments. Check out the stock price and it is forward thinking, Publishing is not where the growth is anymore (Sorry Mr Gannett)
ReplyDeleteYou are correct. The worry is that somehow Gannett will spin gold to crap. The way it so often does on buying stuff and especially, hiring.
ReplyDeleteIt's unfortunate that Gannett will dismantle a once proud property in WFAA and turn it into just another sanitized, cookie cutter crapfest with MMJs and lame graphics. The company is overgrown just like the federal government and will cannibalize itself eventually. Stockholders beware...
ReplyDeleteOnly overgrown in the management ranks, my friend.
ReplyDelete11:42, WFAA may be better off. Belo ain't what it used to be for quality, and Gannett surprisingly runs at least two of the best stations in the country (KUSA Denver and KARE Twin Cities.) Maybe the Mother Ship can learn from its own local successes.
ReplyDeleteWhy would gannet dismantle anything? It bought the baby, it might dress it up, but not dismantle.
ReplyDeleteOh, it will dismantle parts. Centralized Master Control, graphics out of Denver and if they have separate Technical Directors & Directors, well we all know that answer. Remember the current leadership of broadcasting at the Crystal Palace are not visionaries but bean counters. It will be other groups that lead the industry and Gannett Broadcasting will follow like lemmings lapping up the roadkill.
ReplyDeleteAnyone want to wager how many of Belo's 2,700 will be around a year from now? Or how many Gannett veterans will be cut to offset this deal?
Delete