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SHARE Click to enlarge Timothy E. Stautberg Richard A. Boehne

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Two storied media firms, Journal Communications Inc. of Milwaukee and E.W. Scripps Co. of Cincinnati, announced Wednesday evening an agreement to merge their broadcast operations while spinning off their newspapers into a separate company.

Under the deal, the Milwaukee Journal Sentinel will serve as the flagship of a new public company, Journal Media Group, which will be headquartered in Milwaukee.

Meanwhile, Journal Communications' broadcast assets, including WTMJ radio and television, will be folded into Scripps, with the headquarters in Cincinnati. The E.W. Scripps Co. name will be retained and the firm will remain controlled by the Scripps family.

The deal follows a growing trend among media players to divide newspaper and broadcast assets into separate companies.

"Everyone wins," said Steven J. Smith, chairman and chief executive officer of Journal Communications, who will serve as the nonexecutive chairman of Journal Media.

In addition to the Milwaukee Journal Sentinel, Journal Media will consist of all of Scripps' newspapers, including the Memphis Commercial Appeal, community publications and digital offerings. In all, the new company will operate daily newspapers in 14 markets.

The new company will have around 3,600 employees with expected annual revenue of some $500 million.

Journal Media will get a fresh financial start in an uncertain media world. The company's balance sheet will have $10 million in cash and no debt, while Scripps keeps substantially all of the qualified pension obligations.

Timothy E. Stautberg, who oversees Scripps' newspapers, will become CEO of Journal Media.

"I look forward to what we can build, leveraging the strengths of what we have today," Stautberg said.

Smith said everyone involved in the deal realized it was important to keep the headquarters of the new publishing company in Milwaukee.

"It's going to be a larger company than we have today with more employees than we have today," Smith said.

He added that he also was excited for the broadcast employees who currently work at Journal Communications.

"They are going to be part of a larger enterprise with even more resources to continue to serve their markets, and they'll have our people grow professionally," he said. "On both sides of this transaction we feel there is great value, great logic and a great cultural fit."

Scripps will emerge from the deal as the nation's fifth-largest independent TV group, with 34 stations. For the first time in years, it will re-enter the radio market, picking up Journal Communications' 35 stations.

All told, the company will serve 27 TV markets and reach 18% of the nation's households. Moreover, Scripps may become a key platform for political advertising with TV stations in eight battleground states: Arizona, Colorado, Florida, Michigan, Missouri, Nevada, Ohio and Wisconsin.

The merged broadcast and digital company will have 4,000 employees and anticipates annual revenue of more than $800 million. Compared to its peers, Scripps will have low leverage, with about two times EBITDA (earnings before interest, taxes, depreciation and amortization).

"I can't think of two station groups that fit together more easily with more clear upside than when you put these two together," said Richard A. Boehne, who will remain as board chairman, president and CEO of Scripps.

The deal, already approved by the boards of directors of both companies, is expected to close in 2015. The stock-for-stock transaction is anticipated to be tax-free for the companies' shareholders, who must approve the deal.

When completed, Scripps shareholders will own 69% of the broadcasting company and 59% of Journal Media Group.

Journal Communications shareholders will emerge with 31% of the broadcasting company and 41% of the newspaper company.

There will be a $60 million special cash dividend for Scripps shareholders of record before the closing.

According to a release, Journal Communications' Class A and Class B shareholders will receive 0.5176 Scripps Class A Common shares and 0.1950 shares in Journal Media Group for each Journal Communications share.

Scripps shareholders will receive 0.2500 shares in Journal Media Group for each Class A Common Share and each Common Voting Share they hold in Scripps, the release said.

"This is a unique deal," said Smith, who began discussions with Boehne over a dinner in New York in February.

"I think we both felt that this was going to go somewhere," Smith said. "We both felt it would be great for our people and would make good business sense."

Boehne said "the two companies are so similar and share the deep commitment to public service through enterprise journalism."

He added both companies want "to be news industry leaders" and are "very dedicated to making communities better places."

The toughest part of the deal: figuring out the ownership split.

"What's the economic value of a share, what's the economic value of a total and how much does each side contribute," Boehne said. "When you finish that up it comes down to Steve and I on a Friday night fussing back and forth."

Journal Communications was advised by Methuselah Advisors while Wells Fargo Securities acted as exclusive financial adviser to Scripps.

Boehne said Stautberg will provide superb leadership in running the new newspaper company.

"He is a skilled and very discerning executive, very thoughtful," Boehne said. "And he is an incredible amount of fun and people will like him. When it comes (time) for the United Way karaoke contest in the office, he'll be an enthusiastic participant."

Stautberg and his wife, Katherine, have been married 25 years and have four sons.

With a finance background, Stautberg's strength is on the business side of media.

He received a bachelor's degree in economics from Kenyon College and a master's degree in business administration from the University of Chicago. He worked five years as a commercial banking officer for Harris Trust and Savings Bank in Chicago.

He entered the executive development program at Scripps in 1990, joined the Rocky Mountain News in 1992 and held several management positions there before becoming general manager of the Redding (Calif.) Record Searchlight in 1997.

Stautberg has worked at Scripps' Cincinnati headquarters since 1999, filling roles as the company's vice president of corporate communications and investor relations, senior VP and chief financial officer, and senior VP for newspapers.

Stautberg said he is excited to launch the company.

In addition to the papers and their websites in Milwaukee and Memphis, the Journal Media Group will include the Knoxville (Tenn.) News Sentinel; Naples (Fla.) Daily News; Corpus Christi (Texas) Caller-Times; Ventura (Calif.) County Star; Scripps Treasure Coast (Fla.) Newspapers; Independent Mail of Anderson County, S.C.; the Redding (Calif.) Record Searchlight; Wichita Falls (Texas) Times Record News; San Angelo (Texas) Standard-Times; Kitsap (Wash.) Sun; the Evansville (Ind.) Courier & Press and Henderson (Ky.) Gleaner; and the Abilene (Texas) Reporter-News.

The clean balance sheet is a plus.

"One of the benefits is having as much financial flexibility as one could hope for starting out as a new public company," Stautberg said.

He is optimistic about the newspaper business, both print and digital products.

"We're in a business that matters and will continue to matter," he said. "What we'll do in our newsrooms and what we will do with our sales professionals and the others throughout our buildings are special things, unique in each of our markets."

He said the newspapers have a special role to play "in helping each community grow stronger and be a better place to live, work and play."

"Our ability to connect advertisers to customers and the marketplace is important to the community as well," he added.

Stautberg said it made sense to have Milwaukee serve as the headquarters of the new company.

"In Milwaukee we have the flagship newspaper of the portfolio. We have a team and a public company infrastructure in place," he said. "It made the most sense financially and I think spiritually to base this new company in Milwaukee."