Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Tegna, the broadcasting and digital media company that spun off Gannett, has figured out a formula for rewarding its investors: slim down further. 

Less than 15 months since cutting loose its newspaper-publishing arm, Tegna said it would spin off Cars.com, its auto-listings unit, and consider a sale (among other alternatives) for CareerBuilder, its job-search arm. 

The value-creating move appears to have been prompted by a flurry of M&A activity among digital marketplaces and services. These include Thoma Bravo's July agreement to buy Canada's Trader Corp., XIO Group's April purchase of J.D. Power as well as two 2015 transactions: Cox Automotive's acquisition of Dealertrak and IHS's purchase of Carproof. Among employment sites, there was last month's agreement by Monster Worldwide to be acquired by Randstad and the June news of LinkedIn's surprise buyout by Microsoft. 

Slice and Dice
Tegna is splitting off its auto marketplace business and weighing a sale of its recruitment-services arm, in which it holds a controlling stake*
Source: Tegna
*CareerBuilder's other shareholders are McClatchy Company and Tribune Media

Cars.com president Alex Vetter admitted on a call Wednesday that "enormous opportunities" had presented themselves in recent months and a stand-alone company would have more financial flexibility to pursue them. Recent transactions also provide a refreshed benchmark valuation for the company, as do publicly-traded rivals like U.K.-based Auto Trader Group, which commands an enterprise value of 21 times its estimated fiscal 2017 earnings before interest, taxes, depreciation and amortization.

So how much could Cars.com be worth on its own? The unit posted adjusted Ebitda in 2015 of $239 million, according to Tegna. Based on the recent transaction multiple range of "mid-teens to 20s" cited by Tegna CEO Gracia Martore on Wednesday's call, Cars.com could be valued at anywhere from $3.6 billion to $4.8 billion. The top end of that range eclipses Tegna's own closing market capitalization Wednesday of $4.5 billion, meaning shareholders may well have a free option on Tegna's broadcasting business.

Sending Out a (Buy) Signal
Tegna's shares are viewed as a buying opportunity by most analysts on Wall Street, who on average, expect the company's shares to rally some 40 percent in the next year
Source: Bloomberg

Martore, who took the helm at the company roughly five years ago, will retire once the split is complete -- but not without posting a decent track record. Before Wednesday's announcement, she had delivered shareholders with a total annualized return of 23.4 percent, roughly double that of the S&P 500. 

With Tegna's shares jumping as much as 7.4 percent Wednesday and poised for further gains if both Cars.com and CareerBuilder fetch decent valuations in any spinoff or sale, there's room for Martore to further burnish her legacy. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net