Gannett Sharpens Its Focus on Great Britain

By: Lucia Moses

Gannett Co. Inc.’s latest move to enlarge its newspaper footprint in the United Kingdom not only should boost its earnings in the coming year but also could have positive implications for the company as the United States appears poised to either revise or revoke its media cross-ownership rules later in 2003, several financial analysts said.

Gannett announced Monday that it has agreed to purchase SMG PLC’s publishing businesses for $346 million, confirming British media speculation. The Glaswegian company has three regional dailies: The Herald, Scotland’s largest daily broadsheet with 95,718 copies in circulation; the broadsheet Sunday Herald, with circulation of 60,357; and the tabloid Evening Times, Glasgow’s only evening paper, with circulation of 103,126. Also part of the purchase are 11 consumer and business magazines, as well as an online advertising and content business.

Although investors tend to see acquisitions as drags on a company’s stock price, Gannett’s ability to make an accretive deal suggests that post-deregulation also could improve its growth rate, Credit Suisse First Boston’s William Drewry wrote in a research note. Gannett has indicated interest in other acquisitions in the United States, where the company ranks No. 1 by daily circulation.

Analysts figured Gannett paid SMG a multiple of 9.5 to 10.7 times estimated 2003 earnings before interest, taxes, depreciation, and amortization for its publishing properties, which is within the range of recent industry acquisitions based on EBITDA. The deal, expected to get U.K. regulatory approval in March, should add modestly to earnings next year, the analysts said.

While the SMG transaction represents Gannett’s first move into Scotland, the company already has a major presence in Great Britain through its Newsquest subsidiary, which produces more than 300 publications, including 15 dailies.

Completion of the SMG deal would have no impact on Gannett’s debt rating or outlook because of the multimedia company’s strong cash-flow production, according to the Standard & Poor’s credit-rating service. Last year, McLean, Va.-based Gannett reported net income of $831 million on revenue of $6.34 billion.

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