Despite being the larger of the two groups, Gannett will own less than half of the merged entity following its acquisition by GateHouse Media owner New Media Investments.

An announcement that the two have agreed to merge follows months of speculation. Shareholders in Gannett - which owns UK publisher Newsquest, 100 US dailies and ReachLocal, WordStream and SweetIQ - will own 49.5 per cent of the combined group.

The cash-and-stock deal is valued at about US$1.38 billion and is reported to be partly financed with new private equity debt, and is expected to close near the end of the year.

New Media owns 154 dailies and operates in over 600 markets across 39 states.

New Media Investment Group chief executive Michael Reed has been named to take that role in the new company, which will be called Gannett and based at the present Gannett headquarters near Washington. Annual savings of $275-300 million are expected within two years.

If it proceeds, the merger will be a pragmatic response to difficult times, shares in both having fallen by 30 per cent since January. News Media Alliance president and chief executive David Chavern congratulate the companies and looked forward to fighting with them for the future of news publishing: "At a time when there is a lot of focus on the challenges facing the news industry, it's encouraging to see two companies who are ready to face them head-on and are thinking strategically about sustaining the future of journalism," he said.