New Media acquisition of Gannett approved
Shareholders cleared the way Thursday for New Media Investment Group and USA TODAY owner Gannett to join forces in a deal that will create the largest U.S. media company by print circulation, and one that will also vie for the biggest online news audience nationwide.
In separate votes, shareholders of each company approved New Media’s $1.13 billion acquisition of Gannett. The companies can now move forward to finalize the deal, which is expected to close Tuesday, “subject to the satisfaction of customary closing conditions,” New Media said in a statement.
The combined company will be called Gannett and will own more than 260 daily publications, as well as hundreds of weeklies. The new company will reach an average monthly online audience of more than 145 million unique visitors, according to traffic measurement firm Comscore.
The deal “gives us a much broader platform on which to build our digital businesses and to help each of these local markets to become engines of growth for us from a digital perspective,” Gannett CEO Paul Bascobert said Thursday at the company’s shareholder meeting, where the vote results were revealed. “Our commitment to build those brands is even stronger than ever.”
The company’s financial success will hinge on its ability to shed overlapping costs and achieve what it calls a “digital transformation” built on increased revenue from digital products and marketing services. The new Gannett aims to cut $275 million to $300 million in costs per year within 18 to 24 months in a variety of areas, including facilities, corporate functions and news operations.
Analysts are split on whether the company can pull off the savings, which are critical to paying off a $1.8 billion loan that New Media obtained from private equity firm Apollo Global Management to help finance the deal.
“I think $300 million is a low number” for the cost cuts, Newsonomics media analyst Ken Doctor said. “The number is going to be higher.”
Doug Arthur, an analyst at Huber Research Partners in Connecticut, estimates cost savings of $245 million annually beginning in the third year of the new company. “You’ll definitely get some economies of scale” and “a lot of savings in the corporate offices” and printing sites, he said. But he does not believe the company will achieve its cost-savings goal.
New Media CEO Mike Reed, who will become CEO of the new Gannett, told investors on Oct. 31 that “we feel great about the synergies.”
“We have been working hard on integration planning, and we are now even more confident in our ability to realize the high end of the range in savings and within the 18- to 24-month period we previously stated,” he said.
Bascobert will retain his title as head of the new company’s operating subsidiary, also to be called Gannett. He has said he’s confident of hitting the savings target.
It’s crucial because, at an interest rate of 11.5%, the Apollo loan could become onerous if not paid off quickly, said Tim Hynes, head of North American research for debt analysis service Debtwire. “The whole goal is to get rid of that,” he said.
In addition to its national presence through USA TODAY, the new Gannett will operate news organizations in 47 states and Guam, as well as the United Kingdom.
“The combined operations will have a broad local-to-national network of incredibly talented, experienced journalists who can continue to deliver unique award-winning content for both local communities and national audiences,” Bascobert told investors in a conference call Nov. 4.
For the new Gannett, the key challenge will be offsetting continued print declines with digital revenue.
In recent years, Gannett has pursued a unified journalism and business strategy through the promotion of the USA TODAY Network, which includes all of its U.S. publications. Under that brand, the company has won several Pulitzer Prizes, expanded its investigative reporting and shared journalism resources. New Media, operating as Gatehouse Media, has also expanded its investigative reporting team.
Gannett and New Media have each cut costs and made a series of acquisitions in recent years to bolster revenue and gain scale.
But financial challenges in the industry have proven to be an obstacle in Gannett’s quest to remake itself, as digital advertising and consumer revenue have been less lucrative than print.
Precise vote totals were not immediately available, but New Media CEO Mike Reed said that about 99% of the 75% of New Media shareholders who voted approved the deal.
At least 82% of Gannett’s shares were voted in favor of the deal, Gannett Chairman J. Jeffry Louis said.