The five media companies that own Cars.com confirmed an agreement today to sell the highly successful auto shopping website to one of those owners, Gannett, in a deal that values the service at $2.5 billion.
Gannett will pay McClatchy, Tribune, Graham Holdings Company and A.H. Belo a total of $1.8 billion for their shares. The deal also enables McClatchy, Belo, Tribune Publishing and The Washington Post to keep using the website for their auto sales for the next five years.
The sale, rumored for weeks, provides Gannett with sole control of a profitable digital site and gives the sellers an infusion of cash at a time of high valuations for Internet ventures. McClatchy, for instance, will take away $640 million for its 25.6 percent share and net $406 million after taxes.
The companies said this is a good time to sell Classified Ventures, the parent company of Cars.com, and celebrated the success of the joint venture that has become the nations second-largest auto selling site.
Cars.com is a shining example of what the newspaper industry can accomplish working together. We joined forces and from scratch developed a highly successful Internet company, said McClatchy CEO Pat Talamantes, who added:
This transaction will provide funding for the continuing digital transformation of McClatchy, including the ability to find other exciting digital investments. It will allow us to continue to pay down debt and will generate liquidity for other uses.
Cars.com, which has 10 million monthly unique users and lists 4.3 million new and used cars from 20,000 dealers, has grown steadily since its creation in 1997. The sale comes seven months after Cox Enterprises paid $1.8 billion for a 25 percent share of Autotrader.com, the leading auto site with 14 million unique users a month.
The companies will continue working with Cars.com under a new, 5-year affiliate agreement that gives them exclusive sales of Cars.com products and services in their local markets. They include McClatchy, which operates newspapers and websites in 29 markets; Tribune Publishing, which includes the Los Angeles Times and Chicago Tribune; The Washington Post; and the Dallas Morning News.
Bloomberg News, which first reported the deal on Monday, said the affiliate agreements will continue to provide profits to the sellers, resulting in a lower sale price from an initial expectation of $3 billion. Gannett said it will finance the purchase through cash on hand and by issuing bonds.
The company also announced it would split into two publicly-traded entities, one focused on digital and broadcast, the other on publishing.
"One of the most smartest things Gannett is doing is not putting any debt on the newspaper operation they're spinning off," said Craig A. Huber, an independent media research analyst at Huber Research Partners. Gannett is following the script of other media companies that have separated their print and broadcast holdings. These include Belo, News Corp, Tribune, which finalized its similar split on Monday, and Scripps/Journal Communications, announced last week. For McClatchy, said Huber, the deal allows the company to work off more of its high debt. The sale of an important asset at a time when valuations are high makes sense, and the $406 million in estimated after-tax proceeds from the sale, he said, will help knock down the $1.3 billion of net debt on the Sacramento, Calif.-based company's balance sheet. "It's kind of like selling your wife's wedding ring, your very best asset, but it gives them breathing room to pay down debt," said Huber. "It's a good thing for McClatchy."
Shares of Gannett, McClatchy, and A.H. Belo were up in after-hours trading Monday as news of the deal spread. McClatchy gained the most -- up 21% to $5.50 initially and settling at 13% late Monday.
McClatchy has sold a number of assets in the past year, including its stake in the Apartments.com website, the Anchorage Daily News and McClatchy-Tribune Information Services, a joint wire service now operated by Tribune.
A company spokesman said the timing of the sales were coincidental and did not represent any change in strategy.
The Cars.com sale is expected to close before the end of the year.