GateHouse Media's owner and Gannett have agreed to merge in a deal aimed at cutting overlapping costs and enabling the combined company to pursue a digital transformation as the media industry grapples with the disruptive forces of online news, social media and smartphones

New Media Investment Group said Monday that it reached a deal to acquire Gannett, which owns USA TODAY and more than 100 other daily publications and digital marketing services such as ReachLocal.

Pittsford, New York-based GateHouse, the operating subsidiary of New Media Investment Group, will combine with McLean, Virginia-based Gannett, the larger of the two companies, in a cash-and-stock deal worth about $1.38 billion and financed in part with new private-equity debt.

Together, the two companies would operate more than 260 daily news operations – far more than any other U.S. news publisher – and boast potentially the largest online audience of any American news provider.

The combined company will be based at Gannett’s headquarters west of Washington, D.C.

New Media Investment Group CEO Michael Reed will remain CEO of the umbrella company, which will be named Gannett after the deal closes.

Paul Bascobert, former XO Group president, former Bloomberg LP chief operating officer and former Dow Jones chief marketing officer, was appointed CEO of the current Gannett.

Bascobert will serve as CEO of the combined Gannett-GateHouse subsidiary, while Reed will remain at the top of the umbrella company, which will also take on the name Gannett. Gannett's current chief financial officer, Alison Engel, is expected to become CFO of the new Gannett.

The acquisition is expected to close around the end of the year.

The companies estimated they can save $275 million to $300 million in annual costs within 24 months. They said the savings would come primarily from the "increased scale of the new organization, sharing of best practices, leveraging existing infrastructure, facility rationalization and other judicious cost reductions."

New Media shareholders will own 50.5% of the combined company, while Gannett shareholders will own 49.5%. The company's nine-member board will consist of five directors from New Media, three from Gannett, and New Media's current lead director, Kevin Sheehan.

“We believe this transaction will create value for our shareholders, greater opportunities for our employees, and a stronger future for journalism," Reed said in a statement.

Private equity firm Apollo Global Management provided a five-year secured loan worth of $1.792 billion to help finance the deal.

“The Gannett Board unanimously determined that this combination with New Media is in the best interests of Gannett shareholders, customers, audiences, and employees, providing significant and immediate value, as well as the ability to benefit from the upside potential of the combined company,” said J. Jeffry Louis, chairman of Gannett, in a statement.

Louis added that the two companies are a strong "cultural fit."

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Both companies are dealing with a sharp decline in print revenue. Across the industry, newspapers lost about 57% of their advertising and circulation revenue and about 49% of their weekday print circulation from 2000 to 2018, according to the Pew Research Center.

After reports of the potential deal emerged in recent weeks, analysts told USA TODAY that the deal could help give the two companies time to reduce their expenses and secure sufficient digital revenue to maintain significant news operations.

The stakes are high. The fate of for-profit local journalism hangs in the balance as the news industry spars with digital giants Google, Facebook and others for revenue and the attention of Americans.

"We all pray that it works," said Nancy Whitmore, professor of communication at Butler University in Indianapolis, and an expert on media economics. "Those of us that see the immense significance of local news certainly hope it works."

Whitmore pointed to important journalism like the Gannett-owned Indianapolis Star's investigative reports on disgraced gymnastics doctor Larry Nassar as emblematic of the type of work that establishes the significance of identifying a sustainable financial model.

Gannett had about 16,980 employees at the end of 2018, while GateHouse had about 10,638 employees, according to their securities filings.

Gannett had nearly double as much revenue in 2018 – $2.92 billion, compared with GateHouse’s $1.53 billion – and had about double the market capitalization, as of Friday.

Gannett’s publications include the Detroit Free Press, Arizona Republic, Indianapolis Star and Milwaukee Journal Sentinel. GateHouse’s publications include the Columbus Dispatch in Ohio, Austin American-Statesman in Texas and the Oklahoman.

New Media Investment Group’s operator, Fortress Investment Group, is owned by Japanese conglomerate SoftBank, which is known for its investments in technology companies. Fortress will continue to operate New Media until the end of 2021 and has negotiated a breakup fee to step aside.

The acquisition comes about four years after Gannett split from the broadcasting arm of its former parent company, now known as Tegna.

In recent years, Gannett has pursued a unified journalism and business strategy through the promotion of the USA TODAY Network, which includes all of its U.S. publications. Under that brand, the company has won several Pulitzer Prizes, expanded its investigative reporting and shared journalism resources.

But financial turmoil – including the continued loss of print advertising dollars and 2016’s aborted attempt to acquire the media company now known as Tribune Publishing – has proven to be an obstacle in Gannett’s quest to remake itself. The company’s CEO, Robert Dickey, retired in May without a permanent replacement.

Likewise, GateHouse has faced similar challenges. The company has responded to the industry’s revenue decline by making a series of acquisitions to bolster its revenue and gain scale while also shedding costs.

Independently, Gannett and GateHouse have been making progress attracting paid digital subscribers to partially make up for the loss of print subscribers in recent years.

Gannett's digital-only subscriptions rose 34% year-over-year to 561,000 in the second quarter.

GateHouse’s digital-only subscriptions rose 44% year-over-year to 174,000 in the first quarter.

As the new CEO in charge of the combined Gannett-GateHouse entity, Bascobert is drawing upon deep experience in the news industry. He also has a diverse set of experiences outside of the news industry, including past roles as an engineer at General Motors and Whirlpool Corp. and as a co-founder of data analytics firm Vertex Partners.

Also Monday, Gannett reported that its revenue fell 9.6% in the second quarter, compared with a year earlier, to $660.3 million. Net income of $26.7 million rose 64% from $16.3 million a year ago, surpassing analysts' expectations of $14.1 million. Net income included $6.5 million of after-tax restructuring, asset impairment charges, and other costs, offset by $32.8 million of gains on property sales.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.