How Cars.com spin-off will benefit Tegna

08 Sep 2016

This article was emailed to AIM Group clients of Classified Intelligence Report yesterday, as part of our paid advisory service. For more information about becoming a client, click here.

One day after announcing CareerBuilder was making a “transformative move” into new products, the other shoe dropped. Actually, two shoes dropped.

Tegna, parent company of CareerBuilder and Cars.com, announced it would spin off Cars.com into a new publicly traded company, and “evaluate strategic alternatives” for CareerBuilder.

Translation on CareerBuilder: It’s up for sale, if Tegna can get the right price. And it probably will.

First, CareerBuilder: The company announced on Tuesday the acquisition of Workterra, a software company that employers use to manage employee benefits and career paths. CEO Matt Ferguson called it a “defining moment” and a “transformative move” for the company.

The next day, Tegna said it would “evaluate strategic alternatives for CareerBuilder, including a possible sale. … While our 53-percent majority interest in CareerBuilder will remain with Tegna, we, along with our partners, Tribune Media and McClatchy, believe it also makes sense to evaluate strategic alternatives for this business given its recent evolution.”

As is required in such cases, Tegna reminded its shareholders, “there can be no guarantee that any of the options under review will result in a transaction”.

CareerBuilder launched in 1995, and in 2001 acquired publicly traded HeadHunter.net. For the next 13 years, it worked closely with newspapers that sold its products in local markets — but at the same time made no secret of the fact that its fortunes were better in markets where it was not tied to the newspaper. It expanded internationally, and went through various acquisitions and evolutions in its ownership, until it had just three owners: Gannett (later Tegna), Tribune (later Tribune Media) and the McClatchy Co..

Tegna (NYSE: TGNA) was itself spun off from Gannett Co. Inc. in 2015, taking the company’s digital and broadcast divisions. In Wednesday’s announcement, Tegna also announced the planned retirement of president / CEO Gracia Martore, and the planned spin-off of Cars.com. An initial public offering is planned in early 2017. 

“The spin-off of Cars.com from Tegna is … expected to improve management fit and focus at both companies,” the announcement said. “As a result of the planned spin-off, which is expected to be tax-free to Tegna shareholders, Tegna and Cars.com will be positioned to take advantage of different opportunities in the rapidly evolving broadcast and digital landscapes.”

Tegna will receive a cash dividend from the initial public offering of Cars.com, which will trade as CARS and will retain CEO Alex Vetter. Vetter was an early employee of Cars.com. He became CEO in November 2014 following the departure of long-time CEO Mitch Golub — who left when Gannett took over after buying out its partners in Cars.com for $1.8 billion U.S. at a valuation of about $2.5 billion U.S..

Cars.com is the No. 2 automotive site in the U.S., behind Autotrader.com, owned by Cox Enterprises. Cars.com is a more consumer-focused site, while Autotrader.com focuses on dealers.

Vetter serves on the boards of several digital technology companies, including RepairPal.com, an auto services site that is partly owned by Cars.com.

What does it all mean?

Tegna stock dropped more than 35 percent from its split from the Gannett newspapers, and the company carried heavy debt. Although Cars.com will be debt-free after its spin-off, expected early next year, Tegna will take a substantial cash dividend from the IPO. And presumably it would receive a significant cash payment as well from the sale of CareerBuilder, if / when it happens. (Tegna’s stock spiked a bit after the announcement.)

So, as is typical with Gannett / Tegna transactions during the past umpteen years, it’s all about the financial engineering — and has very little to do with whether it’s better for clients, customers, the companies involved, or anyone but shareholders.

This article was emailed to AIM Group clients of Classified Intelligence Report yesterday, as part of our paid advisory service. For more information about becoming a client, click here.

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