SACRAMENTO, Calif. -- The McClatchy Co. will collect $640 million from its share of the blockbuster sale of an automotive website, the Sacramento newspaper publisher said today, a payout that reflects robust prices for Internet companies.
McClatchy, owner of The Sacramento Bee and 28 other papers, including the Bradenton Herald, and three other media companies agreed to sell auto-shopping website Cars.com to Gannett Co. Inc., which already owned 27 percent of the site. McClatchy, which owns 25.6 percent of the website, will receive proceeds of $406 million after taxes. The other sellers are Tribune Media Co., A.H. Belo Corp. and Graham Holdings Co.
McClatchy likely will spend the bulk of its proceeds on paying down debt and investing in other digital businesses, said McClatchy President and Chief Executive Pat Talamantes.
The deal valued Cars.com at $2.5 billion, or nearly 15 times the website's annual cash flow. Talamantes said the sale price was the main motivation for the deal. McClatchy and the other sellers will maintain a five-year affiliation agreement with Cars.com.
"The Internet space has gotten relatively frothy," Talamantes said in an interview. "It was a great price. It pays us for the growth in Cars.com and we have the added benefit of the five-year affiliation agreement." McClatchy
has now sold assets totalling $821 million this year, including Cars.com, its sister website Apartments.com and a newspaper in Alaska. Talamantes, however, said McClatchy isn't undergoing a slow-motion breakup.
"It's all coincidental," he said of the multiple transactions.
The deal is the biggest McClatchy has struck since early 2007, when it sold its largest newspaper, the Star Tribune of Minneapolis, for $690 million. Analysts said freeing up cash to pay down debt was a key for McClatchy.
The company is nearly $1.5 billion in debt, the legacy of its 2006 purchase of Knight Ridder Inc. That burden has hobbled McClatchy's ability to make the transition to a digital-focused business, said independent media consultant Ken Doctor.
"If you look at McClatchy's transformation, the overhang of the debt has been huge," Doctor said. "That kind of cash can be pivotal to McClatchy going forward."
McClatchy shares rose 9 cents, to $4.65, in mid-day New York Stock Exchange trading.
Doctor acknowledged "there's an irony" that McClatchy is selling a successful Internet business in order to hasten its transition to a digital company. "Sometimes you have to take a step aside," he said.
Talamantes said McClatchy felt no pressure to cash in on Cars.com. The company has been able to refinance its debt so the bulk of its IOUs, some $900 million in bonds, won't mature until 2022, which he said gives McClatchy considerable breathing room.
"We didn't have to do this deal; we wanted to do this deal," Talamantes said. "We want to take advantage of this deal because of the valuation opportunity."
Initial media reports in the spring said the owners of Cars.com were seeking a sale price of as much as $3 billion. The $2.5 billion valuation is "certainly a decent enough number," said Barry Lucas, senior vice president for research at Gabelli & Co. in New York. A $3 billion figure "would have blown me away."
Under the deal, McClatchy will continue to sell Cars.com ads for the next five years, but on less favorable financial terms than before. Talamantes wouldn't go into detail but said the new financial terms were factored into the $2.5 billion valuation.
"The fact that there will be a five-year affiliate agreement, albeit under inferior economic terms, provides a bit of a runway to rebuild a digital automotive business," Lucas said.
McClatchy is now sitting on about $600 million in cash. Talamantes said the company hasn't decided how much will be spent on debt repayment and how much will go to investing in other digital assets.