(Reuters) - Local media company New Media Investment Group NEWM.N said on Monday it will buy USA Today-owner Gannett Co GCI.N in a $1.4 billion deal, creating the biggest newspaper owner in the United States as publishers struggle with readers shifting to online sources for news.

FILE PHOTO: The corporate flags for the Gannett Co and its flagship newspaper, USA Today, fly outside their corporate headquarters in McLean, Virginia, July 23, 2013. REUTERS/Larry Downing

Faced with declining revenue, Gannet has invested millions in the last few years to scale up its digital footprint. Sales, however, haven’t quite picked up as yet. The company, which also owns local papers ranging from the Detroit Free Press to the El Paso Times, missed second-quarter revenue on Monday.

Now by merging, the companies expect to cut costs by $275-300 million annually and said they would together have 263 daily media organizations across 47 states, as well as USA Today. New Media and Gannett are the largest U.S. newspaper owners by circulation, according to Statista.

About 25% of the combined company’s revenue will come from digital, New Media Chief Executive Officer Michael Reed said on a conference call.

New Media is run by Fortress Investment Group, which is owned by Japan's SoftBank Group Corp 9984.T, and has built the largest chain of local U.S. papers, including 156 dailies from the Austin American-Statesman to the Register-Guard in Eugene, Oregon.

After the merger closes, expected by the second half of 2019, New Media will hold about 50.5% stake in the combined company, to be led by Reed.

Gannett shareholders will receive $6.25 in cash and 0.5427 of a New Media share for each share they hold, amounting to $12.06, which represents 12.2% premium to Gannett’s Friday close.

The $1.4 billion equity value is based on 116.7 million outstanding shares as of June 30.

Both New Media and its operating subsidiary GateHouse will be rebranded and operate under brand “Gannett”.

Earlier this year, Gannett fended off newspaper chain MNG Enterprises's MNGE.PK efforts to put its nominees on its board, after it rejected MNG's $1.36 billion hostile takeover bid.

Shares of Gannett closed up 2.6% at $11.04, while those of New Media Investment Group closed down 7.6% at $9.89.

While New Media reported revenue of $404 million in its second quarter on Monday, Gannett had revenue of $660 million.