Gannett plan to split follows a national trend

Published September 30, 2014 by Joan Tupponce

McLean-based Gannett Co. Inc. has joined a growing list of media companies splitting themselves in two.

In August, Gannett announced its plan to create two publicly traded companies — one focused on broadcast and digital businesses and the other on publishing.

“It has been a trend for several years. It’s not new,” says analyst James Goss of Chicago-based Barrington Research. The list of companies going through splits includes giants like News Corp., Tribune Co. and Time Warner Inc. “Gannett is the last to go,” the analyst says.

As the largest U.S. newspaper publisher, Gannett’s properties include USA Today as well as 81 local U.S. daily publications and Newsquest, a regional community news provider.

Gannett says the separation will increase each company’s growth opportunities while allowing them to pursue strategic acquisitions. But profit, as you might expect, played a big role in the decision.

“Part of the reason for the split is that the growth rate and profitability of broadcast media is different from the profitability of publishing. It made sense for shareholders to split out the business,” says Gregory Fairchild, associate professor of business administration in the University of Virginia Darden School of Business.

Gannett’s broadcasting business, which includes 46 television stations it owns or services, will be the largest independent station group of major network affiliates in the top 25 markets. “Their stations reach a significant share of the country,” Goss says.

This year, Gannett’s broadcasting segment reported second-quarter revenue that was almost 88 percent higher than the same time period last year, mainly because of its acquisition of Dallas-based Belo Corp. During the same period, Gannett’s publishing segment saw a 4.1 percent decline in revenue. Overall, the company’s revenue growth was 12 percent.

“If you have a company that owns both publishing and broadcast, you have to blend the higher and lower figures together to get a composite value. Perhaps it’s less obvious where the value comes from,” Goss says. “If you split in two, you look at each asset uniquely. Instead of a blended multiple, we have two multiples separately.”

The Gannett name will stay with the publishing company after the split. Its broadcasting and digital company is yet to be named. “It’s not inconceivable that it would have Gannett in it,” Goss says, noting that Tribune’s split resulted in Tribune Media and Tribune Publishing.

He believes it makes sense to have the Gannett name associated with the publishing division. “Gannett started out as a publishing company. That is the part of the business the Gannett name has been associated with for the largest period of time,” he says. “It makes sense to leave that branding alone even if the other becomes Gannett Broadcasting.”