(Reuters) - Gannett Co Inc (GCI.N), the publisher of USA Today, said it would spin off its publishing assets and take full ownership of automotive website Cars.com as it bolsters its digital business.
With the spinoff, Gannett joins media companies such as Time Warner Inc (TWX.N) and Tribune Media Co TRBAA.PK that have hived off their newspaper businesses after struggling with deep declines in advertising revenue and circulation.
Gannett said one company would focus on broadcasting and digital content and the other on publishing after the spinoff, which would be done through a tax-free distribution to Gannett’s shareholders.
Shares of Gannett, the largest newspaper publisher in the United States with 82 publications, jumped nearly 7 percent premarket on Tuesday.
“We view the moves favorably, as the sum of the parts should be greater than the whole; each remaining company will be able to pursue acquisition growth opportunities,” Noble Financial analyst Michael Kupinski wrote in a client note.
Gannett has also been aggressively expanding its broadcasting and digital businesses. It spent $1.5 billion on buying broadcaster Belo last year.
The company said on Tuesday it would buy the 73 percent stake it does not already own in Classified Ventures, the entity that owns Cars.com, from other joint venture partners for $1.8 billion in cash.
Gannett will buy out the remaining stake from Tribune, McClatchy Co MNI.N, A.H. Belo Corp and Graham Holdings Co (GHC.N).
The deal values Cars.com, which lets users check prices, compare models and read reviews of auto dealers, at about $2.5 billion.
“Cars.com doubles our growing digital business, while our recent acquisitions of Belo and London Broadcasting doubled our broadcasting portfolio,” Chief Executive Gracia Martore said.
Separating struggling newspaper businesses from faster-growing TV assets is in vogue with media companies.
Time Warner’s spun out magazine unit, Time Inc (TIME.N), reported a drop in first-quarter revenue in its first earnings report on Tuesday, hurt by a decline in subscription revenue and newsstand sales.
Gannett said it expects its publishing business to be virtually debt-free after the separation, with all of its existing debt retained by the broadcasting and digital company.
The publishing company will retain the Gannett name and will be headed by Robert Dickey, currently president of Gannett’s U.S. Community Publishing division.
Greenhill & Co was financial adviser to Gannett on the spinoff, while Wachtell, Lipton, Rosen & Katz was the legal adviser. Greenhill and Citigroup were financial advisers and Nixon Peabody LLP was legal adviser on the Cars.com deal.
Moelis & Co advised Cars.com. Skadden, Arps, Slate, Meagher & Flom LLP was the legal adviser to the sellers.
Gannett’s shares were trading at $36.73 before the bell. They closed at $34.32 on the New York Stock Exchange on Monday.
Additional reporting by Ankit Ajmera in Bangalore; Editing by Saumyadeb Chakrabarty