TGNA - Tegna Inc

[JayGatsby]

Seemingly interesting spinoff situation. Tegna (The renamed non-newspaper, mostly tv broadcasting assets of what was formerly Gannett) is targeting a spin-off of cars.com effective June 1: https://finance.yahoo.com/news/tegna-board-directors-approves-spin-223000807.html

 

Similar spinoff dynamic as Ferrari; Tegna trades at 8x EBITDA which is inline with broadcasting peers while containing cars.com, which arguably is worth more than 8x. Auto Trader (LSE:AUTO) trades for 22x. Here's the presentation announcing the spinoff, which has a few slides on cars.com:  http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjQ0OTYxfENoaWxkSUQ9MzUxMTM4fFR5cGU9MQ==&t=1

 

Additional upside if Tegna announces the sale of careerbuilder, which is rumored to be nearing a sale for $1B+ (tegna owns 53%): http://www.reuters.com/article/us-careerbuilder-m-a-gtcr-idUSKBN1771UU .  They'd orgininally targeted doing these at similar times if I remember right, so not sure if the sale got delayed/postponed or it's still on track.

 

I don't love the valuation of the underlying broadcasting business, but I think you can hedge that by shorting Sinclair (If you overlay the two here  you can see that they've traded fairly closely over the past year: https://finance.yahoo.com/chart/tgna/). Tegna has an on-again, off-again share repurchase program that doesn't send a whole lot of confidence.

 

[JayGatsby]

Tegna is down ~14% since I posted this (7.5% today!). This tracks fairly closely with other broadcasters. There's been some articles on how challenged the tegna business model has become due to cord cutting, with no mention of the other assets: http://www.fiercecable.com/broadcasting/discovery-tegna-trouble-as-content-redistribution-model-runs-out-reasons-to-exist . The pair trade has been close to even (was net up yesterday, down today). I added a bit today with Nexstar as the pair.

 

The investor meeting on cars.com was today: http://investors.tegna.com/phoenix.zhtml?c=84662&p=irol-investorKit

Record Date: May 18

Distribution Date: May 31

 

I went through it a bit quickly and will watch the rest later. Seemed good enough to warrant at least an 8x ebitda multiple. Few things stuck out:

1. They expect digital auto spend to continue to grow.

2. They're moving offices to make room for the new size of the company.  Whether correlated or not, margins are expected to be lower going forward...

3. They inherited affiliate resale agreements from when they were owned by the newspaper companies. Once these expire they expect their own salesforce to outperform and they expect margins to be higher. This doesn't happen until 2019 or 2020 though.

 

Will see how it works out pretty soon...  :-\

[jouni1]

looks like the shares were almost free? what am i missing? why didn't the stock price go down at all?

[morningstar]

looks like the shares were almost free? what am i missing? why didn't the stock price go down at all?

 

Stock still trades including the spin off, so no impact on price yet

[jouni1]

huh? what does the record date mean then?

[LC]

Any thoughts on the valuation of CARS?

[JayGatsby]

Any thoughts on the valuation of CARS?

Not really. The flat revenue forecast for 2017 is fairly underwhelming. One thought is to short Auto Trader (AUTO) at 22x EBITDA in a pair trade. AUTO trades in London, potentially making it more difficult to short.

[eclecticvalue]

I saw valuations that were at $2.4 billion. Also, it depends on what the valuation is going to be on after May 31st. If I see it less than $1.4 billion then I might take a position.