As part of the separation, Cars.com will send a parting gift to its parent in the form of a $650m dividend financed by its new credit facilities. Cars.com will still have some room to borrow though giving it the ability to actually invest in growing the business. TEGNA will use the proceeds to pay back debt and reduce its overall leverage. Interestingly, TEGNA will stop buying back shares and institute a $0.28 annual dividend. Cars.com is not expected to pay a dividend.
The completion of the spinoff will usher in a period of new leadership at both the parent and spinco. Both Gracia Martore, TEGNA’s President & CEO, and Jack Williams, President of TEGNA Digital, will retire after the transaction is completed. Ms. Martore will be replaced as TEGNA’s President & CEO by Dave Lougee who will also join the company’s Board of Directors. Alex Vetter will lead Cars.com as its President & CEO. Mr. Vetter will also join the board whose Chairman will be Scott Forbes.
The spinoff of Cars.com is merely another step in TEGNA’s transformation into a pure media company. The process started back in 2015 with the spinoff of its publishing assets, Gannett (GCI). Shareholders haven’t really been rewarded since that move, but perhaps some ‘additional focus’ is what the company needs. Interestingly, in 2014, Gannett, which at the time included what is now TEGNA, bought out its partners in Cars.com for $1.8b. Cars.com operates in a highly competitive space, but one that is also changing dramatically. Used car prices have plummeted, but the web has become increasingly more important to the space. Perhaps focused management will be able to deliver on Cars.com’s promise, but it remains to be seen whether or not TEGNA shareholders will choose to tag along for the ride.
Disclosure: Author holds no position in any stock mentioned.