Tuesday, August 5, 2014

GCI: Will split into two separate companies; acquires remaining 73% of Cars.com

Gannett (GCI) announced it is planning to split into two separate companies trading on the NYSE.  This will likely be completed by mid-2015.  GCI also announced it will buy the remaining 73% of Cars.com for $1.8bil in cash.

GCI will be split into a newspaper publishing company and a broadcast and digital company.  As a reminder, one of our valuation methods applied to GCI was sum-of-parts. 

The acquisition of Cars.com will likely double EBITDA of GCI's current digital segment in 2015.  We think it will also expand the segment's EBITDA margin to high 20s.  Based on that alone, we think 10x EBITDA is a more appropriate multiple for the digital segment (higher than our original 8x).  We note that after the split, the digital and broadcast company will be able to focus on further top-line growth and margin expansion without having to worry about the declining publishing segment. 

We will adjust our model by the end of this week and will suggest our updated valuation of GCI.  Our latest valuation was $40/sh.  The stock is practically unchanged after being up more than 8% before the open. 

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