New Media Investment Group to acquire Gannett
New Media Investment Group Inc. and Gannett Co., Inc. have entered into a definitive agreement pursuant to which New Media will acquire Gannett for a combination of cash and stock.
Under the terms of the merger agreement, shareholders of Gannett will receive $6.25 in cash and 0.5427 of a New Media share for each Gannett share they hold, representing total consideration of $12.06 per Gannett common share based on New Media's closing stock price as of Aug. 2, 2019, and a premium of approximately 18 percent to the five-day volume-weighted average price of Gannett shares as of that date. After the close of the transaction, Gannett shareholders will hold approximately 49.5 percent of the combined company and New Media shareholders will hold approximately 50.5 percent.
The merger brings together the portfolios of two leading local newspaper companies, and includes USA TODAY, Gannett's flagship brand, and its more than 160 brands in the U.K., which will significantly expand the existing USA TODAY NETWORK.
This combination will create a broad network of talented, experienced journalists poised to deliver unique and award-winning content for local communities and national audiences. The breadth and depth of each company's digital offerings will make the combined company a leading digital media player. Additionally, the joining of New Media's UpCurve and GateHouse Live businesses with Gannett's ReachLocal and WordStream subsidiaries will provide multiple, diversified marketing and revenue solutions and position the combined company as a stronger partner for advertisers and small businesses in the markets served.
With strategically-aligned leadership and significant scale of operations, the merger will accelerate the combined company's digital transformation. The merger also affords an opportunity to realize run-rate cost synergies of $275 - $300 million annually across the combined company in a judicious manner, while continuing to invest in newsrooms.
"We believe this transaction will create value for our shareholders, greater opportunities for our employees, and a stronger future for journalism. Gannett is an innovative, digitally-focused media and marketing solutions company with well-known brands worldwide. Uniting our talented employees and complementary portfolios will enable us to expand our comprehensive, hyperlocal coverage for consumers, deepen our product offering for local businesses, and accelerate our shift from print-centric to dynamic multimedia operations. We are honored to become a part of Gannett's storied history and a steward of their strong media properties into the future. We are committed to delivering significant synergies in a thoughtful manner, consistent with our shared goals for the business," said Michael Reed, New Media chairman and chief executive officer.
"The Gannett Board unanimously determined that this combination with New Media is in the best interests of Gannett shareholders, customers, audiences, and employees, providing significant and immediate value, as well as the ability to benefit from the upside potential of the combined company," said J. Jeffry Louis, chairman of the Gannett Board of Directors. "We see numerous opportunities to leverage the combined company's enhanced scale and financial strength to continue to drive growth in the digital future. Importantly, we have found in New Media a strong partner and cultural fit for Gannett as we continue delivering on a shared commitment to journalistic excellence for the communities we serve."
Compelling strategic and financial benefits
Enhanced scale. New Media and Gannett share a strategic vision, and the combined company's significantly enhanced scale of operations will enable it to realize this vision more rapidly, while generating value for shareholders and benefits for employees and other stakeholders. The merger will create a leading local and national media company with 263 daily media organizations across 47 states and Guam and USA TODAY, reaching more than 145 million unique visitors every month, as measured by Comscore. This scale will meaningfully enhance the combined company's financial profile by leveraging nationwide reach and local presence to expand and deepen relationships with consumers and businesses. As a result, we will accelerate the growth of the combined company's digital revenue through innovative customer experiences and new marketing solutions for businesses, while creating an expansive journalism network with the resources required to deliver unique and award-winning content.
Accelerate digital strategy. New Media and Gannett believe that a digital transformation of the newspaper industry is vital to the preservation of journalism, and the merger will accelerate the combined company's digital transformation. The breadth and depth of each company's digital offerings will make the combined company a leading digital media player and a stronger partner for advertisers and SMBs.
Significant synergies. New Media and Gannett share a commitment to rationalizing costs as the media industry evolves, while continuing to invest in product development, training for newsrooms and understanding readers' needs. The merger is anticipated to result in run-rate cost synergies across the combined company of $275 - $300 million annually, unlocking meaningful shareholder value. The majority of synergies is expected to be realized within 24 months of closing and result from the increased scale of the new organization, sharing of best practices, leveraging existing infrastructure, facility rationalization and other judicious cost reductions.
External Management Agreement. New Media and FIG LLC, an affiliate of Fortress Investment Group, have amended the external management agreement to set the termination date as Dec. 31, 2021. The amendment, as described in more detail below, also reduces the incentive fee rate payable to the manager for the remainder of the term.
Leadership and Governance
The combined company's management team will be led by New Media's current chairman and chief executive officer, Michael Reed. Alison Engel, Gannett's current chief financial officer, is expected to serve as the chief financial officer of the combined organization upon closing. Gannett's newly appointed chief executive officer, Paul Bascobert, will become chief executive officer of the combined company's operating subsidiary. The rest of the combined company's senior executive team, which is expected to be composed of highly experienced leaders from both companies, will be announced at a later date.
Bascobert was the president of XO Group from 2016 until its sale to Permira Equity in 2019. During his tenure, he helped lead the company's transformation from a media company to a marketplace business. Prior to XO, Bascobert led sales, service and marketing for the Local Businesses segment at Yodle from 2014 until 2016. Before that, he spent four years at Bloomberg LP as president of Bloomberg Businessweek from 2010 until 2014, in addition to serving as chief operating officer of the Media Group from 2011 to 2014. Bascobert joined Bloomberg from Dow Jones & Co. where he was senior vice president of operations from 2006 until 2007 and chief marketing officer from 2007 until 2009.
The combined company's Board of Directors will have nine members, including Reed as chairman, five independent directors from New Media, and three independent directors from Gannett. Kevin Sheehan, who currently serves as New Media's lead director, will serve as the combined company's lead director. New Media has been actively engaged in a director search and expects to announce two additional independent directors prior to closing. The companies believe that diversity can strengthen board performance and New Media is actively searching for women and other candidates with diverse backgrounds and experiences.
After the closing of the merger, both New Media and its operating subsidiary GateHouse, will be rebranded and operate under the "Gannett" brand. The combined company will be headquartered in McLean, Va., with a continued corporate presence in existing locations.
New Media expects to fund the cash portion of the merger consideration through a combination of cash on the balance sheet and a new term loan facility to be funded at closing pursuant to a binding commitment from funds managed by affiliates of Apollo Global Management, LLC, a global alternative investment manager with approximately $312 billion in assets under management, as of June 30, 2019, and deep experience in supporting media companies. The Term Loan, which will be used to retire existing financial debt obligations of both companies and to fund the cash component of merger consideration, will be a five-year senior secured term loan facility in an aggregate principal amount of $1.792 billion. The Term Loan will be freely pre-payable without penalty, and the combined company is expected to have a strong cash-flow profile that will permit aggressive deleveraging. Total pro forma leverage at closing of the merger is expected to be approximately 3.5x LTM As Adjusted EBITDA, before run-rate synergies, and 2.3x including run-rate synergies. Target net leverage within two years of closing is expected to be below 1.75x.
Initially, the combined company is expected to have an annual dividend of $0.76 per share. It is expected that the dividend will be increased over time as synergies are realized and leverage is reduced.
External management agreement
Concurrent with the entry into the merger agreement, New Media and the manager have agreed to amend the Management and Advisory Agreement dated as of March 6, 2015, pursuant to which the manager provides a management team (including the chief executive officer) and other professionals who provide services to New Media.
The Amended Management Agreement, which will become effective upon the closing of the merger, provides for the following key changes:
- Establishes a termination date of Dec. 31, 2021, for the manager's services in lieu of annual renewals of the term.
- Reduces the incentive fee rate from 25 percent to 17.5 percent for the remainder of the term.
- Reduces by 50 percent the number of options that would otherwise be issuable in connection with the issuance of shares as consideration for the merger, and imposes a premium on the exercise price.
- Eliminates the manager's right to receive options in connection with future equity raises.
- Eliminates certain payments otherwise due at or after the end of the term.
In exchange, New Media will issue to the manager upon closing approximately 4.2 million shares of New Media common stock. The manager is restricted from selling these shares until the expiration of the Amended Management Agreement, or otherwise upon a change in control and certain other extraordinary events. New Media will also grant the manager approximately 3.2 million options with an exercise price of $15.50, a 45 percent premium to the closing price of New Media common stock on Aug. 2, 2019. These options become exercisable upon the first trading day immediately following the first 20 consecutive trading day period in which the closing price of New Media's common stock (on its principal U.S. national securities exchange) is at or above $20 per share, and also upon a change in control and certain other extraordinary events.
Upon expiration of the term of the Amended Management Agreement, the manager will cease providing external management services to New Media, and the manager will no longer be the employer of the person serving in the role of chief executive officer of the combined company.
Timing and Approvals
New Media formed the Transaction Committee to review, evaluate, and negotiate the merger and the internalization (including the terms of the Amended Management Agreement). The merger has been unanimously approved by the New Media Transaction Committee and by the Boards of both companies. The New Media Transaction Committee separately, and unanimously, approved the Amended Management Agreement.
The merger is expected to close by the end of 2019, subject to the satisfaction of customary closing conditions, including receipt of regulatory clearances and approval by the shareholders of each company.
Credit Suisse is serving as financial adviser to New Media, and Cravath, Swaine & Moore LLP is serving as principal legal counsel. New Media's Transaction Committee retained Jefferies LLC as its independent financial adviser, and Wilson Sonsini Goodrich & Rosati as its legal counsel.
Greenhill & Co., LLC and Goldman Sachs & Co. LLC are serving as financial advisers to Gannett, and Skadden, Arps, Slate, Meagher & Flom LLP and Nixon Peabody LLP are serving as legal counsel.