Newspapers Could Be Bargains, but Few Are Buying
WANT to buy a newspaper company? No? You’re in good company.
The Chicago Sun-Times is the kind of trophy that once appealed to deep-pocketed buyers. It has a big audience in a big market, a storied name, and stars like Roger Ebert and Robert Novak. The Sun-Times Media Group, owner of the flagship paper and dozens of smaller suburban papers, said in February that it wanted to sell assets or maybe the entire company. The chief executive, Cyrus F. Freidheim Jr., said May 8 that “a large number of parties” had asked to see the books, and that the company expected to field offers by the end of that month.
Since then, silence.
This is no isolated case. While all publicly traded newspaper companies have seen their share prices fall in the last year — drops of 50 to 70 percent are commonplace — some have tumbled so far that any number of bargain hunters could snap up a controlling interest, despite the credit squeeze. But they haven’t.
When it took over Dow Jones & Company in December, News Corporation said it intended to sell Dow’s Ottaway chain of small papers. But it shelved the idea for lack of interest.
The market capitalization of the Journal Register Company, publisher of the New Haven Register and hundreds of smaller papers, fell below $1 million last week, down more than 99 percent since the start of 2007. In the same period, GateHouse Media, another publisher of hundreds of small papers, has dropped almost 98 percent, to a market value under $26 million. The Sun-Times Media Group is down 91 percent, to less than $34 million.
At the same time, the bellwether newspaper companies are suffering sliding revenues and market caps. Shares of The Washington Post Company have declined 24 percent since the beginning of the year, The New York Times Company is down 26 percent and Gannett is down 52 percent.
The weak economy and tight credit market have slowed buying in all sorts of media, but the drop-off is especially pronounced in newspapers. There have been isolated deals, like the sale of Newsday to Cablevision for $650 million this year. Other than that, there were just $250 million worth of newspaper deals announced in the first half of 2008, according to the Jordan Edmiston Group, an investment bank that closely tracks media deals.
Experts say the lack of interest reflects a sharp shift in the last year toward a more pessimistic long-term view of the industry. The loss of ads has accelerated, and few expect a rebound even when the economy recovers.
“The story has changed fundamentally,” said Ken Doctor, a newspaper analyst with Outsell, a research firm. “A year ago, the conventional wisdom was, ‘Yep, there are problems out there, but there’s still significant value.’ Now, it’s ‘Run away.’ ”
In 2006 and 2007, plenty of buyers were willing to pay high prices, resulting in some of the biggest deals in the industry’s history: the deal that put Sam Zell in control of the Tribune Company when it went private, the News Corporation’s purchase of Dow Jones, the McClatchy Company’s acquisition of the Knight-Ridder chain, and McClatchy’s subsequent sale of The Star-Tribune of Minneapolis, The San Jose Mercury News, and The Philadelphia Inquirer and Daily News.
“There were many contrarians in the market a year, two years ago that said the model is still fundamentally a good model, but just needed to be reconfigured,” said Scott P. Peters, managing director at Jordan Edmiston. Even if credit were easy, he said, the last year’s bad news “has people paralyzed, saying ‘Wait a minute, there’s a bigger shift going on here.’ ”
The Sun-Times Media Group is losing money at a rapid clip — $35.8 million in the first quarter — and analysts say that some privately held companies may be operating in the red, as well.
Most of the deals of recent years were done with borrowed money, leaving the industry far more heavily indebted than it was just a few years ago, even as it suffers through record declines in revenue. Those new debt burdens are a real concern for established companies like Tribune and McClatchy, and for owners who are new to the business, like the groups that bought the Philadelphia and Minneapolis papers.
The most avid buyers, like GateHouse and the MediaNews Group, owner of the Mercury-News and The Denver Post, are struggling and are in no position to keep buying. And large debts and dwindling profits make papers unattractive to outside buyers at any price.
“The market cap of some of these companies, they’re bite-sized and it would be extraordinarily easy for someone to come in and buy them, and a year or two ago, someone would have,” said Peter Appert, an analyst at Goldman Sachs.
“I would say that what happened to the last round of buyers scared off other bidders, though there weren’t many to begin with,” he said. “And now there are none.”
Despite the long-term challenges, analysts and bankers think that buyers will return to the newspaper market, though they may be outnumbered by people who decide to invest in online news start-ups instead.
International Herald Tribune
New York Times