Sale could reset the bar for newspaper deals -- lower (Dinosaur Media DeathWatch™)

(Red) Star Tribune ^ | December 28, 2006 | Chris Serres

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Based on a multiple of cash flow, the price paid for the Star Tribune was much less than those paid for other papers this year, analysts say.

Big-city newspapers, once held in high regard on Wall Street for their dependable earnings and advertising clout, have never looked so affordable.

On Tuesday, the McClatchy Co. agreed to sell the Star Tribune for $530 million -- less than half the $1.2 billion it paid for the newspaper eight years ago. A tax break of $160 million resulting from the sale makes the deal worth $690 million to McClatchy.

But as a multiple of cash flow -- a common financial benchmark -- the bid was less than the prices paid for other newspapers this year, according to investment analysts.

In a report Wednesday, titled "Minneapolis valuation a bearish signal for the newspaper industry," Goldman Sachs said Avista Capital Partners is paying 7.4 times the Star Tribune's cash flow -- below the current newspaper industry's average valuation of 8.7 times cash flow. Including the tax benefit, the multiple rises to 9.6.

Cash flow is the amount of cash generated from operating revenue and investments, for example, minus the amount consumed by operating and other expenses.

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GONE WITH THE WIND - 2006

"There was a land of Publishers and Editors called the Newspaper Business... Here in this pretty world Journalism took its last bow... Here was the last ever to be seen of Reporters and their Enablers, of Anonymous Sources and of Stringers... Look for it only in books, for it is no more than a dream remembered. A Civilization Gone With the Wind..."

With apologies to Margaret Mitchell...

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Raoul's First Law of Journalism
BIAS = LAYOFFS

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Ping

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http://www.sacbee.com/103/story/99347.html

Buyer sees rebound for papers
Optimism of Star Tribune purchaser isn't shared by all media analysts.
By Dale Kasler - Bee Staff Writer
Published 12:00 am PST Thursday, December 28, 2006

For every seller there's a buyer, and the firm purchasing The McClatchy Co.'s largest and most troubled property says it believes the newspaper industry is about to rebound.

"We're at a low, or near a cyclical low," said OhSang Kwon, a partner with New York-based private equity firm Avista Capital Partners.

"This is a good time to be buying papers," Kwon said in an interview Wednesday. "I think we got a good deal."

The private equity firm agreed Tuesday to buy the Star Tribune of Minneapolis from McClatchy for $530 million. Because it's taking a loss, Sacramento-based McClatchy, which owns The Bee, will realize $160 million in tax benefits, putting the total value of the deal at $690 million.

But that's still a little more than half what McClatchy paid for the paper in 1998, and despite Kwon's enthusiasm, some investment analysts said they don't expect newspapers' fortunes to bounce back any time soon.

"The substantial loss on the sale is a vivid reminder of the industry's declining fortunes over the last several years," Peter Appert of Goldman Sachs Group wrote in a note to investors Wednesday. He added that the price "is not a bullish indicator."

McClatchy stock closed at $43.06, down a penny, on the New York Stock Exchange on Wednesday, the first day of trading since the deal was announced.

- snip -

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http://www.startribune.com/535/story/901549.html

Last update: December 27, 2006 – 11:17 PM
Star Tribune's sale turns several new pages
The deal for the Star Tribune pushes the newspaper and its purchaser into unknown territory.

By Matt McKinney and Susan Feyder, Star Tribune
The Star Tribune's new chairman is a Wall Street investor who says he's driven by public service. Chris Harte is also a resident of Texas and Maine and a former newspaper executive who'll be advising an investment group that has never owned a daily newspaper.

A day after McClatchy announced the sale of the Star Tribune to a New York private equity group, there are more questions than answers about how the deal will reshape the newspaper and its community, and whether it will serve as a template for an industry in transition.

Harte says he's still trying to figure it all out himself.

"This whole transaction came together so fast, really in just the last week or so," Harte said. "At this point we just don't know about things like my schedule."

Harte will be diving into a media market that, in less than a year, has become emblematic of the uncertainty facing the newspaper industry.

Minnesota's oldest newspaper, the St. Paul Pioneer Press, was sold this year after the McClatchy Co., the California-based owner of the Star Tribune, bought the storied Knight Ridder chain. The Star Tribune, meanwhile, will be sold for $530 million to Avista Capital Partners. That is less than half of what McClatchy paid for it in 1998.

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[bert]

All of which means that future cash flow has been discounted and the purchase was made on the basis of diminished revenue projections.

This is an interesting financial exercise. How does one calculate the value of catching a falling star?

[abb]

Way many years ago I was watching a show on the old Financial News Network, from which many of the CNBC folk migrated when it went under.

They had an old guy on named Ed Hart - he was a longtime financial journalist with a rapier wit. Some guest was being interviewed and he was going on about how much such and such was "worth." Hart stopped him and said, "Let's not use the term 'worth.' Let's use the phrase 'presently valued at.'" I've never forgotten that.

Now every time my brother-in-law goes on and on about how much his house is "worth," I ask him has anyone offered him that price lately...

[BW2221]

Maybe the ACLU can buy it with all the public money it receives as a result of its persecution.

The ACLU owning the "Red Star" would be a marriage made in Hell.

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With 'Star Trib' Gone, McClatchy Sheds Another Union Paper -- Coincidence?

By Mark Fitzgerald

Published: December 28, 2006 10:00 AM ET

CHICAGO When The McClatchy Co. immediately put up for sale the dozen so-called "orphans" from the 32 dailies acquired in the blockbuster Knight Ridder Inc. deal, it did not escape The Newspaper Guild's attention that the move neatly culled all but one of the former KR newspapers that had union newsrooms.

Now, the Star Tribune of Minneapolis -- where the Guild represents nearly all newsroom employees plus artists in the ad department and circulation district sales managers -- will be leaving McClatchy as well, sold for a big loss to a private equity firm in order to get some quick cash and mitigate the tax hit coming on the sale of the orphans.

What does the Guild make of that?

"I can't honestly say what factor (the Guild presence) played" in the deal, said Darren Carroll, executive director for the Minnesota Newspaper Guild Typographical Union. "Obviously, it was observed that in the divestiture of the 12 former Knight Ridder papers that all but one of the properties where the Guild had representation ... were divested. In this case (of the Star Tribune), obviously the Guild has a large representation, as do other unions."

The one former paper with a Guild newsroom that McClatchy kept was the Lexington (Ky.) Herald-Leader.

The Star Tribune sale was as much a shock to local Guild leaders as anyone in the newsroom, said local President Amy Wilhelmy, the TV Week copy/layout leader at the newspaper.

McClatchy says the paper's labor situation was not a significant factor in determining to sell to private equity firm Avista Capital Partners for $530 million in cash. McClatchy, which bought the paper for $1.2 billion in 1998 said the loss on the sale would draw down its tax bill on the sale of the orphans by $160 million over the next two years.

"They looked at all factors, but (labor) certainly wasn't driving the decision to sell," said Sarah Lubman of the New York City public relations firm The Brunswick Group. The key reason was the tax advantage "unique to the Star Tribune" among its portfolio of papers, she said. "What's driving this decision is really financial: the ability to reduce debt, the tax benefit, and the ability it gives McClatchy to be flexible in looking at other opportunities," Lubman added.

But the union situation likely influenced McClatchy, says one observer, Michael D. Lindsey of the Cheyenne, Wyo.-based Media Consultants Inc. newspaper brokers firm.

"It kind of looks like McClatchy is cutting and running on its big Midwestern property," Lindsey said. "Maybe they're looking down the road with their union problems."

For the Guild, the good news is that the sales is structured so that new owners Avista will honor the contract that runs until July 2008. Other bargaining agreements end earlier, some as soon as next June, the Guild's Carroll said.

The union factor is just one of the questions in what is a puzzling transaction -- a rare instance of a chain selling off its largest paper, notes Larry Grimes, President of the Gaithersburg, Md.-based newspaper mergers and acquisitions firm W.B. Grimes & Co.

"They're claiming they have sold it for the same multiple that they sold their other papers. That would mean about 11 times (EBITDA)," Grimes said. "Of course, I have no idea how then they justify what they paid for it a few years ago. Why did it fit so beautifully eight years ago, and why does it not fit now?"





Mark Fitzgerald (mfitzgerald@editorandpublisher.com) is E&P's editor-at-large


Links referenced within this article

mfitzgerald@editorandpublisher.com
http://www.editorandpublisher.com/eandp/news/mailto:mfitzgerald@editorandpublisher.com">http://www.editorandpublisher.com/eandp/news/mailto:mfitzgerald@editorandpublisher.com


Find this article at:
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003525680

[The Great RJ]

Perhaps if the Star-Tribune became a truly unbiased newspaper instead of a liberal rant rag sheet, more people might be interested in subscribing. I almost needed another blood pressure pill after reading this morning's Star-Tribune while I'm in Minnesota for the holidays. What a bunch of bilious BS and that was just the front section. I don't think I could have stomached reading the editorial page.

[Doctor Raoul]

Going, going, gone...

[Doctor Raoul]

The Philadelphia Inquirer moved it's editorials to Page 1 a long time ago, but they still use the bylines of "reporters".

Here's the key to their demise, also the clue as to how to survive. The Pinky basically writes off a little more than half the potential audience by either constantly outright insulting conservatives or angering them by liberal bias in the reporting. SO THERE'S NOTHING THERE FOR CONSERVATIVES.

If you're a liberal, you're being told what you already know. There's no "news" for you, just the reinforcement of your beliefs, which to be fair is important to liberals because the do identify more with the group than conservatives. But again, there's no news for you. SO THERE'S NOTHING THERE FOR LIBERALS.

If the Pinky were to do what they claim is "journalism", there would be news for both sides. Facts not opinions. News not insults. The things we conservatives know about but failed to see in the paper would now be in the paper. I wouldn't have to go elsewhere for news. This same news would available for the liberals to discuss. If reported without bias, it wouldn't be insulting to either side. You might even have the the basis for people from opposite sides to have a discussion. But as the Pinky now reads, you have none of that.

BIAS = LAYOFFS

[RayChuang88]

Let's call it what it really is: the Columbia School of Journalism "attitude". And you wonder why most newspapers are dying on the vine.

[Grampa Dave]

The biggest news here may be the buyer, Avista Capital Partners.

This company is buying media, and other assets at an incredible rate. Where are these Indian business men getting their massive $ inflows to buyout large companies>

[Milhous]

Where are these Indian business men getting their massive $ inflows to buyout large companies?

It looks like the chain of grifters "investing" Other People's Money (for a slight fee) goes from Credit Suisse to DLJ Merchant Banking Partners to Avista.

[Doctor Raoul]

CSJ is worthless. While giving the NYT staffers a workout as they filed into Howell Raines meeting on Jayson Blair, I was dressed as "Baghdad Bob" and even had an oversized "My Name Is Baghdad Bob" sticker.

Dimwit at the CSJ had me as Saddam. The NY Post got it correct.

Any parent that paid for their kid to attend CSJ has grounds for a class action lawsuit.

[Jhensy]

Exactly right, Doc. And I speak as a 20-year newspaper vet, from Knight-Ridder to Gannett to my current company.

Exactly right.

[samadams2000]

Take money out of your wallet..now..light it on fire...or buy newspaper stocks.

[george76]

bttt

for Ed Hart

[george76]

" McClatchy Co. said yesterday it will sell the Star Tribune newspaper to the private equity firm Avista Capital Partners for $530 million, a sharp drop from the $1.2 billion it paid to acquire the flagship property just eight years ago..."

http://www.yorkdispatch.com/business/ci_4907961

Yikes !