Spin-Off Research In the News

Gannett's Shares Could Rise 40%

Posted by Joe Cornell, CFA on Fri, Jun 06, 2014 @ 12:06 PM
Spin-Off Research

Gannett's profits are driven by its robust TV business, but its shares are dragged down by newspapers. Why its local gambit could pay off big.

By ALEXANDER EULE | May 31, 2014

When Gannett launched USA Today in 1982, the company was on the cutting edge of technology, beaming the paper's content by satellite to printing plants around the country. Three decades later, most investors view Gannett as a dinosaur. At a recent $28, it was trading at under 11 times earnings estimates for the next 12 months, making it one of the cheapest stocks in the Standard & Poor's 500.

But Gannett (ticker: GCI) hasn't lost its innovative roots. A majority of profits now come from local TV stations, thanks to a $2.2 billion deal last year for Belo Corp. Meanwhile, all of Gannett's 80 local papers, from the Argus Leader, in Sioux Falls, S.D., to the Great Falls Tribune, in Montana, now have a pay wall in front of their Websites. The strategy has helped stabilize revenue at the publishing unit, just as an improving economy, political ads, and licensing fees are boosting broadcast operations. Total sales are likely to rise 15% this year, to $6 billion, with earnings up 33%, to $628 million, or $2.68 a share.

Spin-Off Research"So many people are still anchored in how tough things were in the newspaper industry and not giving them credit for their focus on the small towns and the real value there," says John Rogers, chairman and CEO of Ariel Investments, a longtime Gannett holder. Rogers thinks the stock could top $40 in 18 to 24 months. The shares yield 2.9%.

Broadcast is an increasingly larger part of the company. Three weeks ago, Gannett paid $215 million for six Texas TV stations; the purchase comes five months after the company closed its much larger Belo deal, which brought 17 big-market stations into the fold. In all, the company will have 46 stations across the country. Indeed, this year for the first time, Spin-Off Researchmore than 50% of Gannett's estimated $1.5 billion in Ebitda (earnings before interest, taxes, depreciation, and amortization) will come from television.

"I think investors have begun to realize that more and more of our Ebitda and growth is shifting, as we promised, to higher-margin, higher-growth businesses," Gannett CEO Gracia Martore tells Barron's. The shift could boost Gannett's price/earnings ratio closer to that of its broadcast peers, which trade at 14 to 22 times forward earnings. At 15 times earnings, Gannett is worth $40.

Gannett's local stations are benefiting from multiple industry-wide trends: a surge in political advertising and the rapid growth of licensing fees from cable and satellite distributors. Local station groups are increasingly insisting on big payments from pay-TV operators to carry their signals. The so-called retransmission fees were at the center of last year's dispute between Time Warner Cable (TWC) and CBS (CBS), which owns local stations in large markets. CBS ultimately forced the cable company to double its payments to $2 per subscriber, according to industry estimates. In the first quarter, Gannett's own retransmission fees jumped 66%.

GANNETT IS ALSO still benefiting from a wise decision it made in 2008, when it took a majority position in CareerBuilder.com, the country's largest online job site, which was originally built alongside other newspaper companies. Revenue at Gannett's digital segment -- dominated by CareerBuilder -- grew 4% last year, to $748 million.

But newspapers still cast a pall on growth. Many of Gannett's peers have been pushed to separate their newspaper business from their other operations because it weighs on investor sentiment.

Shares of News Corp, the publisher of Barron's, jumped 45% between the time it announced a spinoff in June 2012 and its completion a year later. Since then, the entertainment business -- renamed 21st Century Fox (FOXA) -- and the publishing assets -- still called News Corp (NWSA) -- have both continued to climb.

Spin-Off ResearchTribune (TRBAA) and Time Warner (TWX) are also spinning off their publishing assets. Shares of Time Inc. (TIME) will begin trading on June 6; Tribune Publishing, soon after.

Gannett is repeatedly asked if it might follow suit. "It would make a lot of sense," says Joe Cornell, who runs Spin-Off Advisors. "I wouldn't be at all surprised if in the next 12 months, Gannett announced that they would split in two." Such a move could be a quick catalyst for the stock. On a sum-of-the-parts basis, the stock could easily be worth $34, says Barry Lucas, an analyst at Gabelli & Co.

Spin-Off ResearchMartore, however, has never been one to follow the crowd. In 2006 and 2007, when she was chief financial officer of the company, Gannett sat on the sidelines as peers went on credit-fueled buying binges. Those deals were ruinous when the credit bubble burst in 2008.

"What's been a hallmark of Gannett is that we don't allow external forces or the fads of the moment to sway us to do something that will give you just a short-term pop," she says. Asked about a potential spinoff, Martore adds, "The board and I are always focused on what ultimately is going to create the most shareholder value in the intermediate to long term…so we would never rule anything out."

WHAT'S CLEAR IS that Gannett is going to win or lose based on local content. USA Today, once Gannett's flagship, is becoming almost a complementary part of the portfolio. The national edition is still read by 3.3 million people in print and online, but the content is also being inserted into local papers and Websites.

"I think we hit that very correct mix of understanding local is the most important," Martore says. Gannett's outlets are spread across the country; it has TV stations in 22 states and newspapers in 30 states (see map below).

Local is a key ingredient for Bill Smead, the CEO and chief investment officer of Smead Capital Management. He sees Gannett as the cheapest and best way to play a continued recovery in the economy and the rise of millennials. Rather than betting on what products people will buy, Smead wants to own a business that reaches people through ads on TV, in newspapers, and online. "Gannett," he says, "has a set of toll bridges that you have to cross to get to 35% of the U.S."

Spin-Off Research



Spin-Off Research is published by Spin-Off Advisors, LLC. Spin-Off Research is a subscription-based service for Professional and Institutional Investors.  Blog entries are delayed.  Spin-Off Research subscriber-base receive the spinoff report at time of press via Email Bulletins.  To learn more about becoming a subscriber, please contact us. Spin-Off Advisors, LLC provides coverage on all US and major Global spinoffs, carve-outs and split-offs; Spin-Off Research published since March 1997.

Tags: Tribune Spin-Off, TRBAA Spin-Off, Tribune Publishing

Spin-offs are hot. These might be the next 16

Posted by Joe Cornell, CFA on Tue, Jun 10, 2014 @ 11:06 AM

Spin-Off Research

By: Matt Krantz June 9, 2014


Spin-Off Research, Spinoff, Spin-Off

Don’t let the market’s disappointing reception of Time Warner’s Time spin-off disappoint you. Spin-offs are faring well on Wall Street and investors are looking for more.

Spin-Off Research is highlighting 16 companies in the Standard & Poor’s 500, including Amazon.com, McDonald’s and Target, which it says are the most likely to have a potential spin-off. These aren’t predictions or guaranteed, but the companies that have the characteristics that usually tip off investors to a potential spin.

Investors have been loving spin-offs because it allows a massive company to divest a smaller unit with the possibility to become something much more grand. The Guggenheim Spin-Off exchange-traded fund is up 20.8% over the past year, topping the 18.6% gain of the S&P 500.

Many companies are looking to the strong capital markets as their chance to sell off units at lucrative prices. Companies that Spin-Off Advisors have in their potential spin-off list:







American Int’l


Boston Scientific


Dow Chemical




General Electric


Hartford Fin’l


Illinois Tool Works
















Source: Spin-Off Advisors, USA TODAY research

View the article on usatoday.com: Spin-Offs are hot. These might be the next 16



Spin-Off Research is published by Spin-Off Advisors, LLC. Spin-Off Research is a subscription-based service for Professional and Institutional Investors.  Blog entries are delayed.  Spin-Off Research subscriber-base receive the spinoff report at time of press via Email Bulletins.  To learn more about becoming a subscriber, please contact us. Spin-Off Advisors, LLC provides coverage on all US and major Global spinoffs, carve-outs and split-offs; Spin-Off Research published since March 1997.

Tribune Gets Ready to Make News Again

Posted by Joe Cornell, CFA on Tue, Jun 17, 2014 @ 14:06 PM

Spin-Off Research


Tribune is turning itself into a big broadcaster with lots of valuable assets it could spin off. Why the stock could rise 25%.

Vito J. Racanelli | June 14, 2014

spin-off research, spinoff tribuneSince exiting bankruptcy in January 2013, Tribune TRBAA  hasn't gotten a lot of ink on Wall Street. Many investors still identify the media company with its out-of-favor newspaper assets, such as the Chicago Tribune.

Despite nearly $8 billion in market value, Tribune's shares (ticker: TRBAA) trade over the counter, as if it were a risky penny stock. 

It's not. Investors who bother to look closer will find the Chicago-based broadcaster and publisher is in the midst of big changes that, within 12 to 18 months, should lead both to significantly improved financial performance and a stock that could be worth 25% more than last week's $82.20.

"It's a misunderstood company," says James Langer, a portfolio manager at Advisory Research, which owns about 1.7 million shares. The bankruptcy has given Tribune a much cleaner balance sheet, and the upcoming strategic shifts, together with the sale of some noncore assets, will turn it into a "pure play broadcaster," Langer says. And Tribune's new CEO has a couple of other moves underway that could boost its valuation.

The most dramatic development will be the separation of Tribune's lower-margin publishing and newsprint assets into a newly public company, Tribune Publishing, which will be listed on the New York Stock Exchange under the symbol TPUB. The company announced Friday that the split would occur in the third quarter, which pushed Tribune 3% higher. That should allow the remaining, higher-margin broadcasting business, still known as Tribune, to get a better market multiple (see table below). Tribune holders will get one share of the publishing company for every four Tribune shares.

ALTHOUGH BROADCASTING-DIVISION sales fell a bit last year to $1 billion from $1.1 billion, in part owing to the lack of political advertising, margins of earnings before interest, taxes, depreciation, and amortization (Ebitda) in that business remain over 30%, twice those of publishing. That's the reason for the split.

The company is trying to develop the broadcasting assets by investing more heavily in them, including the $2.7 billion purchase in late December of Local TV, which nearly doubled its station count. Tribune already is one of the largest independent broadcasters in the U.S. It owns or operates 42 stations in 33 markets around the country, with 14 of them ranking in the top 20. That includes the CW Network's affiliate, WPIX, which is in the nation's No. 1 market, New York City. Tribune's stations reach about 50 million households, representing 44% of the U.S. total.

It also wants to expand further into digital entertainment, where it made a $170 million acquisition earlier this year of music-streaming company Gracenote.

Spin-off research, Tribune

















Tribune CEO Peter Liguori, who came on board in January 2013, is best known for taking the FX Networks cable channel from a small fry to a valuable asset at 21st Century Fox FOX +0.44%21st Century Fox Inc. Cl BU.S.: Nasdaq $34.54 +0.15+0.44% June 16, 2014 2:58 pm Volume (Delayed 15m) : 2.58M P/E Ratio 25.06Market Cap $78.18 Billion Dividend Yield 0.72% Rev. per Employee $1,197,46006/09/14 Chase Carey Renews With 21st C...06/03/14 TV Shows Get Longer Window on ...06/03/14 Heard on the Street: Don't Pla...More quote details and news »FOX inYour ValueYour Change Short position (FOX). (Fox was affiliated with Barron's parent, News Corp NWSA -0.58%News Corp Cl AU.S.: Nasdaq $17.13 -0.10-0.58% June 16, 2014 2:58 pm Volume (Delayed 15m) : 1.89M P/E Ratio N/AMarket Cap $9.88 Billion Dividend Yield N/ARev. per Employee $362,75006/12/14 Jurors Start Deliberations in ...06/09/14 Chase Carey Renews With 21st C...06/06/14 Canary Wharf Group Gets Green ...More quote details and news »NWSA inYour ValueYour Change Short position (NWSA), before their split last year.). To date, Liguori has aimed high in new TV programming. Tribune's Salem, a new supernatural drama set amid the 17th century Massachusetts witch trials, premiered in April to strong early viewership. (Tribune declined to make Liguori available for an interview.) Broadcast advertising should also rise in 2014, as the election season returns in November.

At the same time, Tribune has several noncore assets whose value investors believe isn't fully reflected in the stock price. Tribune hasn't said what is or isn't for sale, but it does hold a 28% stake in Classified Ventures, which recently sold Apartments.com for $585 million. Classified also owns Cars.com, the subject of rumored interest from Gannett GCI -0.31%Gannett Co. Inc.U.S.: NYSE $28.64 -0.09-0.31% June 16, 2014 2:58 pm Volume (Delayed 15m) : 368,549 P/E Ratio 18.99Market Cap $6.52 Billion Dividend Yield 2.79% Rev. per Employee $168,59806/11/14 Tremor Video Chief Revenue Off...06/06/14 The Morning Ledger: Shareholde...06/05/14 Investors Close Golden Parachu...More quote details and news »GCI inYour ValueYour Change Short position (GCI) at a total price of $3 billion. Gannett declined comment.

Bulls think that, for the right price, Tribune would unload its 31% stake in the popular Food Network, with hits like Chopped and Cutthroat Kitchen.

Another source of additional value could be Tribune's extensive real estate portfolio. Although nothing specific has been discussed, the company has spoken about the "optionality" of the holdings, which many take to mean it could engage in a sale/leaseback of its buildings or even convert properties into a real estate investment trust. Either move, which could take a long time to implement, would add value to Tribune, and presumably its shares.

Less well known is that as Tribune's retransmission contracts come up this year, it should enjoy much higher fees from cable-TV outfits that pick up Tribune station content, says Eric Green, research director and portfolio manager at Penn Capital Management, which owns about 150,000 shares. These are fees that cable companies pay to local TV broadcasters in exchange for the right to include the local TV feed in their cable bundles.

Spin-off Research, Tribune

Industrywide, retransmission fees have been rising rapidly of late, but Tribune, preoccupied with its bankruptcy, hasn't reworked as many of them as other broadcasters. Green says Tribune gets about 25 cents per subscriber per month on the ones it hasn't redone, though the current market rate is more like $1.10 to $1.30 per subscription. Tribune will renegotiate about 50% of its retransmission contracts, which should produce a sizable jump in revenue, Green says.

In 2013, Tribune posted net income of $242 million, or $2.42 per share, down from $422.5 million in 2012, when Tribune was still operating in bankruptcy. A number of factors, including significantly higher amortization charges, brought down the 2013 net results, but lower advertising in publishing generally and the lack of ad-generating elections were also culprits.

Tribune's publishing operations, hurt by Internet incursions, have been holding down the parent's valuation. Even though the publishing side supplied two-thirds of last year's $2.9 billion in consolidated revenue, it produced less than half of the Ebitda of $787 million. All told, the new stations, additional programing revenue, and higher retransmission fees, should boost Ebitda to about $900 million in 2015.

The Bottom Line

Tribune shares could be worth 25% more, or $104, once it hives off its publishing, if it can realize more of the value in its various assets.

Even the hard-hit newspaper business has seen its rate of decline slow. And Tribune still owns some powerful brands, with eight major news outlets, including not just the Chicago Tribune but also the Los Angeles Times and the Baltimore Sun. Sales in the first quarter dropped 2.6%, less than half of 2013's decline. Once out on its own, Tribune Publishing will be the second-largest U.S. newspaper group behind Gannett, based on Sunday circulation.

THE NEW TRIBUNE WILL benefit from a bigger audience of shareholders. Tribune shares are expected to move to a listed exchange from the bulletin boards in the next six to 12 months. Right now, Tribune isn't well known or well covered, Green notes, and some institutional investors and mutual funds are precluded from buying bulletin-board stocks.

No stock is without blemishes, and the higher-valuation thesis would be set back in the unlikely event that the publishing separation doesn't occur. Also, there's no guarantee that the millions Tribune spends on new programming will win over fickle TV audiences.

But those seem like reasonable risks to take for investors interested in buying cheap shares in a company with a promising game plan.



Spin-Off Research is published by Spin-Off Advisors, LLC. Spin-Off Research is a subscription-based service for Professional and Institutional Investors.  Blog entries are delayed.  Spin-Off Research subscriber-base receive the spinoff report at time of press via Email Bulletins.  To learn more about becoming a subscriber, please contact us. Spin-Off Advisors, LLC provides coverage on all US and major Global spinoffs, carve-outs and split-offs; Spin-Off Research published since March 1997.


Tags: Tribune Spin-Off, TRBAA Spin-Off, Tribune Publishing