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FP&A M&A: How Three Leaders Handled the Gannett Spinoff

  • By Bryan Lapidus, FP&A
  • Published: 7/12/2017

split
In the past five years, several major media companies split their publishing businesses from other operations. Publishing, including print newspapers and magazines, has been in decline for the past two decades, and executives looked to create separate businesses to hold faster versus slower growth assets.

Gannett followed a similar path at the end of the second quarter 2015. At the time, it had a market capitalization of about $9 billion, and combined revenue of more than $6 billion in FY 2014. The existing company was renamed TEGNA (a sort-of anagram of Gannett) and retained the media and broadcasting assets, plus digital sites CareerBuilder.com and Cars.com. A new company was created to hold the publishing assets, including USA Today, and received the name “Gannett” and associated brand equity, and no debt.

Corporate groups were generally assigned to either of the companies in their entirety; FP&A went to TEGNA while Gannett created a new team. The remainder of this article will explore the spinoff from the vantage points of three FP&A leaders across the two teams.

Stacy Cunningham, Vice President, FP&A, Gannett

Cunningham had been supporting Gannett Digital for 10 years through business development, strategic planning, cost budgets and revenue planning. The new Gannett hired a new CFO six months before the spin, and she installed Cunningham as the vice president of FP&A approximately one month before the split.

Cunningham’s first challenge was learning the corporate side of the business. “There was so much of the business that I had to learn,” she said, including areas outside her previous domain, such as medical costs, pension cost and insurance. These all had to be calculated for the new operating company and forecasted.

A related challenge was creating an historical basis of comparison. Cunningham used the “carve-out” financials, or reconstructed financial statements of the divested company, which were based on headcount, square footage or percentage of revenue allocations, depending on the department. However, those allocations were not necessarily going to be the costs of a newly independent public company. Therefore, costs comparisons were not overly meaningful in some cases. Secondly, as Gannett looked at its businesses on fully loaded basis, there were many allocations to understand. The new Gannett made some changes to those allocations, which also complicated historical comparisons.  Cunningham spent a lot of time with the accounting team to learn how specific items were managed in financial reporting, and then to be able to project them forward.

Bill Coakley, Director of FP&A, TEGNA

Coakley joined Gannett’s corporate FP&A 10 years prior to the split. His divestiture experience was tremendously different from Cunningham’s. His group moved intact from old Gannett to TEGNA, and his role essentially remained the same. Leading up to the spin, he was asked for many iterations of how the company would look in various forms, but from his vantage point, the major decisions were made from the top down. Topics such as debt, dividends, and business alignment were all decided at the senior management and board level.

The different experiences of Cunningham and Coakley reflect a reality for employees: after a spinoff, some people will find their positions relatively unchanged while others will be totally reorganized.

Coakley noted that the spinoff results in changes you don’t see coming. Initially, there was a collegial back and forth among the groups as institutional knowledge resided on each side. Some staff shuffled between the companies, as well. After a while, however, the view changes. “No one realized pre-spin how things were going to be post-spin. No one realized that people who you used to hang out with before are now working for another company and have different priorities,” he said.

Ben Fernando, Head of Reporting & Analysis, TEGNA

Fernando’s responsibilities include board reporting, long-range planning, investor relations support for the CFO and lead finance officer for the CMO. Given his role supporting investor relations, he was the “go-to” person on the finance side to craft presentations for the investor day conferences to explain the strategies, benefits and bottom lines to shareholders and bondholders. Since Gannett did not have a person to complete this, Fernando played that role for both companies. This required him to work closely with the CFO, CEO and outside bankers.

In reflecting on the spinoff, Fernando notes there was a unique opportunity to make changes to the accounting systems. Gannett is a 100+-year-old business that has grown in large part through mergers, acquisitions, and strategic investments. This type of growth often creates a need to rationalize the multiple accounting systems and GL lines. “Some lines are unused, or you may find that it requires 13 different items to total up to the number that you really need,” he said. “[GLs] may be organized by product, organization, or even by VP,” leading to challenges in financial analysis.

After the spin

Change is a way of life at both TEGNA and Gannett. Freed from federal restrictions about owning too many media assets in a single market, Gannett has purchased Journal Media Group, Inc., North Jersey Media Group and ReachLocal media. TEGNA is still evolving into a pure-play media group by spinning off Cars.com, as well as the anticipated sale of CareerBuilder. As Cunningham, Coakley and Fernando go through additional rounds of mergers and acquisitions, they will gain from their experience in splitting one of America’s largest media companies into two.

Bryan Lapidus, FP&A, is a contributing consultant and author to AFP. Reach him atBLapidus@AllegianceAG.com.

 

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