McLEAN, Va. -

What published reports back in May indicated was in the works came to fruition on Tuesday — Gannett Co. will soon solely own Cars.com.

Gannett signed a definitive agreement to acquire full ownership of Cars.com as part of a structure to create two new publicly traded companies with scale. Under the agreement, Gannett will acquire the 73 percent interest it does not already own in Classified Ventures, which owns Cars.com, for $1.8 billion in cash.

According to an announcement from the McClatchy Co., Cars.com was valued at $2.5 billion. Classified Ventures, whose primary asset is Cars.com, is a joint venture among McClatchy, Gannett, Tribune Media Co., Graham Holdings Co. and A. H. Belo Corp. McClatchy owns 25.6 percent of Classified Ventures.

Both McClatchy and Gannett said the transaction is expected to close before the end of 2014 and is subject to normal regulatory reviews.

Gannett’s acquisition and reorganization plans create one segment that exclusively will be focused on its broadcasting and digital businesses, which includes Cars.com, and the other on its publishing business.

Gannett president and chief executive officer Gracia Martore explained the moves will create two focused companies with increased opportunities to grow organically across all businesses as well as pursue strategic acquisitions.  

“The bold actions we are announcing today are significant next steps in our ongoing initiatives to increase shareholder value by building scale, increasing cash flow, sharpening management focus and strengthening all of our businesses to compete effectively in today's increasingly digital landscape,” Martore said.

“Cars.com doubles our growing digital business, while our recent acquisitions of Belo and London Broadcasting doubled our broadcasting portfolio,” Martore continued. “These acquisitions, combined with our successful initiatives over the past 2½ years to strengthen our publishing business, make this the right time for a separation into two market-leading companies."

Auto Remarketing first mentioned a report from Reuters about this deal back on May 7.

Future of Cars.com

Officials highlighted Cars.com now is the No. 2 auto-related site with approximately 30 million visits per month. Annual visits have grown at a rate of 17 percent for the last several years.

Since its inception, the company said Cars.com has grown consistently, and today the site displays approximately 4.3 million new and used vehicles from nearly 20,000 dealers.  

“Acquiring all of Cars.com further accelerates Gannett's digital transformation and is consistent with the company's focus on local media and marketing services,” Gannett officials said. “The automotive sector is the single largest and most important vertical for local advertising revenue, and Cars.com is one of the few proven and established digital solutions of scale in this market.”

Upon closing of the transaction, officials explained McClatchy, Tribune Publishing, The Washington Post and A. H. Belo will enter into new, five-year affiliate agreements with Cars.com that will allow each company to continue to sell Cars.com products and services exclusively in their local markets. T

McClatchy's president and CEO Pat Talamantes noted the affiliate agreements increase the wholesale rate at which the affiliates will purchase Cars.com products.

“Cars.com is a shining example of what the newspaper industry can accomplish working together,” Talamantes said. “We joined forces and from scratch developed a highly successful Internet company that has benefited consumers, auto advertisers, our individual companies and our shareholders. After 17 years, the time is right for an ownership change. We're happy to monetize a valuable digital asset and feel great that Gannett, our long-term partner in CV, will continue to innovate in order to grow the company and move it forward.

"We will continue to provide highly-effective digital sales and marketing tools to the automotive advertisers in each of our markets and we look forward to our continued partnership with them,” he continued. “Our commitment to grow our Cars.com business remains as strong as ever.

“We are proud that McClatchy has some of the best Cars.com sales professionals in the country. Our new affiliate agreement offers us the flexibility to provide the products and appropriate pricing for Cars.com to each market while leveraging our experienced and energized sales force that knows how to get the best results from these products for advertisers,” Talamantes went on to say. “We believe this is a great outcome for our local auto advertisers."

How Deal Is Being Financed

Gannett explained that it will finance the acquisition through cash on hand, the issuance of approximately $650 to $675 million in new senior notes and borrowings under the company's revolving credit agreement.

The transaction is expected to contribute approximately $155 million in annual incremental 2014 pro forma EBITDA to Gannett, which includes the impact of the new affiliate agreements. Gannett officials indicated the transaction price implies a multiple of 11.7 times pro forma 2014 estimated incremental EBITDA.

“Based on the more favorable economics associated with the new affiliate agreements, as well as anticipated cost efficiencies, the company expects a pro forma 2015 estimated incremental EBITDA multiple of 9.2 times,” Gannett officials said. “The company will maintain a strong balance sheet, with anticipated pro forma net leverage initially at approximately 2.8 times, which will be reduced over time.”

Commenting on the finance part of the deal, Talamantes said, “This is a significant transaction for our company and its shareholders, and we are very pleased with how it came together. We received a great price that reflects the strength of the Cars.com franchise while maintaining the right to sell its products and services to our customers.”