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 $1.13Â billion acquisition of Gannett. The companies can now move forward to finalize the deal, which is expected to close Tuesday, Nov. 19, “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 building those brands is even stronger than ever.”
Can Gannett Hit Savings Goals?
The new 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 the 24-month period we previously stated,” he said.
Gannett’s current CEO, Bascobert, will retain that 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.Â
Under terms of the deal, Apollo has the right to appoint two observers to the company’s board and could appoint one or two voting directors if the company’s debt exceeds its earnings by too great of a margin.
“If it turns out that the management team doesn’t hit their plans, they’ll be more assertive as time goes on,” Hynes said of Apollo.
But Apollo believes that the new Gannett can afford to pay the debt off on time or potentially early with no prepayment penalty, according to people with knowledge of the Apollo financing deal who spoke on the condition of anonymity because they were not authorized to speak publicly.
Company Will Expand Reach
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 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 proved to be an obstacle in Gannett’s quest to remake itself, as digital advertising and consumer revenue have been less lucrative than in print.
Can subscriptions keep growing?
On their own, New Media and Gannett have had early success in adding online subscriptions, which are viewed as key to replacing lost print revenue. In the third quarter, Gannett’s digital subscriptions rose 27% to 607,000, compared with the same period a year earlier, while New Media’s rose 65% to 217,000 over the same stretch.
Building those subscription bases will require investing in journalism, said Michael Silberman, senior vice president of strategy at subscription commerce and tech provider Piano, which counts New Media as a client.
“A lot of the focus in the early days will be on integration and cost savings, and the key to success will end up being how much of those cost savings are they able to ultimately plow back into the product itself and serving the local communities,” said Silberman, a former general manager of digital media at New York Media, the parent company of New York magazine. He said the question from a subscription point of view is whether those investments are enough to create “news that’s worth paying for.”
Jeff Gordon, a regional vice president for The NewsGuild whose region represents journalists at four GateHouse newsrooms, expressed fears that the deal will lead to further distress for journalists who have already faced budget reductions.
“The obvious concern the Guild has expressed is all the debt incurred in the merger, which creates pressure to drive cash flow and could result in further cuts,†he said.
At the same time, Gordon said he has confidence in Reed’s leadership of the new company.
“Mike is a newspaper guy,” Gordon said. “There are a lot of vultures circling the industry right now, and Mike is not one of them.â€
In addition to USA TODAY, Gannett owns 109 local media properties operated as the USA TODAY Network – including the Arizona Republic, Detroit Free Press, Milwaukee Journal Sentinel and Indianapolis Star – as well as United Kingdom-based Newsquest Media Group and digital marketing assets like WordStream.
New Media owns 152 daily publications – including The Palm Beach Post, The Columbus Dispatch, The Oklahoman and Austin American-Statesman – as well as 284 weekly newspapers operated as GateHouse Media and digital marketing assets like ThriveHive.
Together, the new company’s publications and digital marketing services will be under pressure to stem revenue declines. Arthur said he believes the combined company’s revenue projections are “way too optimistic” due to the continued demise of print. Â “I don’t think this is going to be a lay-up,” he said.
But one area for growth is events, where New Media has a particularly strong business, Doctor said. Another is digital marketing services, where Gannett’s recently appointed CEO, Bascobert, is devising a strategy for growth.
Doctor said Gannett’s success with the development of the USA TODAY Network, which shares journalism resources and national ads, is also key.
“In digital form, the USA TODAY Network is one of the reasons to do this deal,” Doctor said. “They are of enough scale that they are doing a good amount of digital national business, and the GateHouse properties added in there gives them more scale.”
New Media shareholders will own 50.5% of the combined company, while Gannett stockholders will own 49.5%. The company will be based at Gannett’s headquarters in McLean, Virginia.
Gannett had about 16,980 employees at the end of 2018, while GateHouse had about 10,638 employees, according to their securities filings.
The new Gannett’s nine-person board will consist of Reed plus five New Media appointees and three Gannett appointees.
As part of the combination, New Media Investment Group’s operator, Fortress Investment Group, will continue to operate the combined company. Fortress, which is owned by Japanese conglomerate SoftBank, negotiated a breakup fee to step aside at the end of 2021.
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.
Contributing: Sarah Taddeo
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
