Newspaper Consortium Seeks to Sell Cars.com for $3 Billion; Online Marketplace is Jointly Owned by Gannett, Tribune, McClatchy and Other Publishers

Newspaper Consortium Seeks to Sell Cars.com for $3 Billion

Online Marketplace is Jointly Owned by Gannett, Tribune, McClatchy and Other Publishers

WILLIAM LAUNDER, DANA MATTIOLI and MIKE SPECTOR

Updated March 9, 2014 4:48 p.m. ET

A group of newspaper publishers has put the cars.com online marketplace up for sale for as much as $3 billion, hoping to cash in on booming values for e-commerce sites, people familiar with the plans said.

Moelis & Co., which is advising the Classified Ventures publishers consortium on the sale, already has begun discussions with potential bidders, which are expected to include private-equity firms and strategic investors, the people said. It is also possible that one of the publishers could raise its stake or buy out the others.

Gannett Co. GCI -1.97% , for instance, which owns around 27% of Classified Ventures, has signaled that it could raise or sell its stake, depending on the price, according to two people familiar with the company’s thinking.

If a deal is struck, it effectively would unwind Classified Ventures, an online ad-listings firm. In addition to Gannett, whose newspapers include USA Today, the consortium’s owners are Los Angeles Times publisher Tribune Co. TRBAA -3.21% , Dallas Morning News publisher A.H. Belo Corp. AHC -3.89% , Miami Herald owner McClatchy Co. MNI +0.53%and Graham Holdings Co. GHC +0.27% , the former owner of the Washington Post. Classified Ventures last week said it planned to sell its other main property,apartments.com, to CoStar Group Inc. CSGP +0.27% for $585 million.

The moves to break up Classified Ventures come as the market for e-commerce sites has been heating up. In January, Providence Equity Partnerssold a 25% stake in the AutoTrader classifieds site to majority owner Cox Enterprises Inc. for $1.8 billion. Providence reaped three times its original investment in AutoTrader as a result of the sale and a dividend AutoTrader paid to Providence in 2012.

Meanwhile, the shares of e-commerce companies such as Yelp Inc. YELP -0.56% and Priceline Inc. have soared over the past year, driven in part by the gradual shift of commerce to online venues.

AutoTrader, for example, has reported steadily increasing sales.

Cashing out now while the market is hot is of further appeal to Classified Ventures’ owners amid concerns that Web giants such as Google Inc. GOOG -0.40% and Amazon.com Inc.AMZN -0.03% eventually could emerge as competitive threats, the people familiar with the plans said.

Started in 1997, Classified Ventures was aimed at giving its newspaper-publisher owners a toehold in what was then a nascent market for online auto and rental classifieds. Cars.com attracts around 11 million car shoppers a month, according to its website, while AutoTrader says it reaches 14 million car buyers monthly.

Classified Ventures generates tens of millions of dollars in annual dividends for its owners. That helps offset the industrywide decline in print advertising, including classifieds, that has hurt the newspaper sector over the past few years.

But the original rationale for the Classified Ventures arrangement has diminished as newspapers have become less important to several of its owners. The Graham family, which controls Graham Holdings, last year sold the flagship Washington Post. And Gannett and Tribune have been expanding in television broadcasting through acquisitions. Tribune this year plans to spin off its newspapers into a separate company called Tribune Publishing. Its digital assets, such as its Classified Ventures holding, won’t be part of the spinoff.

By selling the Classified Ventures businesses, the publishers can raise money for investment in areas they see as offering better growth prospects, or to return money to shareholders.

Cars.com generates around $400 million to $500 million in revenue a year, according to a person familiar with the site. But a new owner potentially could tap roughly an additional $200 million annually. That revenue currently is distributed directly to the owners separate from the dividends they receive, through sales agreements that allow their newspapers to handle ad sales on behalf of Cars.com in many local markets.

Those arrangements could be eliminated by a change of ownership, which would allow the buyer to consolidate nationwide sales operations under a single entity, a person said.

One question weighing on the sales process is the possibility that some of the owners will retain their stakes.

That would limit an outside buyer’s ability to boost revenue by canceling the affiliate-rights agreements, lowering the site’s value.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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