Dean Singleton Is Paying McClatchy Around 12 Times Cash Flow To Buy His Four Knight-Ridder Newspapers So No Wonder He Is Green With Envy When He Sees The Tribune Company Buying Up 25% Of Its Stock for About 8 Times Earnings!

The panel was asked about newspaper valuations and Singleton piped up, “Well that all depends, doesn’t it Gary, on whether you are the buyer or the seller!” Laughter all the way around.

What went unsaid but was understood was that Pruitt and Singleton were deep into negotiations for Singleton to buy four of those newspapers at a substantial markup to the approximate 8 times earnings McClatchy had paid. Singleton finally made the deal at around 12 times earnings, and it was fairly obvious by his voice that he was not all together happy with Pruitt’s asking price.

So, having forked out around $1 billion recently for four properties Singleton is a pretty good judge of newspaper valuations and he thinks what the Tribune Company is doing by going $2 billion into debt to buy up to 75 million of its own shares is “brilliant”. As he sees it that’s buying your own company back for around eight times earnings and that’s a cheap price for newspapers as far as he is concerned.

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Tribune’s CEO Reverses Course From Diverting Share Buy-back Funds to Buying Web Sites And Instead Mortgages The Company To The Hilt With A $2 Billion Buy-Back That Sees The Share Price Soar But Credit Ratings Plunge
At least Tribune Chairman, President, and CEO Dennis J. FitzSimons didn’t have to take his media group the way of Knight-Ridder and put it on the block as some had feared with the share price hovering around eight-year lows. But the company is now taking on about $2 billion additional debt, and making $500 million in asset sales to buy back some 75 million shares – about 25% of the company – in order to boost the share price and keep investors happy.

As Public Newspaper Companies Hold Their Annual Shareholder Meetings The Ghost of Knight-Ridder Newspapers Is There, Too
Tribune Chairman, President, and CEO Dennis J. FitzSimons told his shareholders this week what a few weeks ago would have been the unthinkable: “As Knight-Ridder found out, everything in this environment is possible. That’s one of the reasons we have to operate as efficiently as we are operating right now and continue to look for efficiencies.”

A High Price For Knight-Ridder Sale Would Have Signaled A Bright Future For Newspaper Valuations, But McClatchy Paid Practically No Premium And Yet In The Intervening Weeks Its Shares Have Dropped 12% To A Four-Year Low. What Does That Tell You?
Most observers seemed to think that McClatchy did OK. It bought Knight-Ridder for $4.5 billion representing a dollar or two a share over its stock market price, and then said it was only keeping the 20 newspapers that showed real growth and it was dumping the rest, and that sale, after tax, would reduce the total transaction to around $3 billion.

The Popular Spin Is That Newspapers Are Still A Great Business, Just Not As Good As They Once Were. So How Come Moody’s Downgrades Dow Jones, and Puts New York Times and Tribune Under Credit Watch, and Knight-Ridder Sold for Basically No Premium?
Newspapers are a business that on average still produce operating profit margins of around 19% in the US – some countries even more -- and that kind of figure is the envy of many other business sectors. But the margin has been dropping through the years and the main question Wall Street is asking is where does it stop?

Lee Bought Pulitzer Last Year for 13.5 times Earnings Yet McClatchy Paid Just 9.5 times Earnings For Knight-Ridder. What Does That Tell You About the Value of Newspapers Today?
That someone, it happened to be McClatchy, paid about $67.25 a share for Knight-Ridder -- some $4.5 billion plus absorbing K-R’s $2 billion of debt -- was about what the markets expected. But where was Gannett and all those private equity companies that were expected to put in bids? The word is they dropped out, which gives as good an indication as any that newspaper valuations are not what they used to be.

Singleton and Dennis FitzSimons had a brief tête-à-tête this week on the sidelines of the Newspaper Association of America’s annual Mid-Year Media Review -- Singleton wanted to know whether any Tribune newspaper was going to be up for sale and was told it wasn’t going to happen . After the meeting Singleton told the Chicago Tribune that he thought FitzSimon’s plan was “solid”.

Singleton freely admits being a fan of the newspaper business and has little patience for those who say the end is near. He is investing heavily in new color presses for many of his properties.

As Singleton sees it, FitzSimons is onto a heck of a good deal. “They’re buying back their stock for 7.9 times cash flow or something? That’s a good buy. I’m out paying 12 times to buy newspaper assets. I wish I could buy them for 7.;9, but I can’t.”

Many of the newspapers reporting at the meeting emphasized how well their Internet business are going. FitzSimons said that at the Tribune online revenues this year are up 28%. At the New York Times Company its Internet revenue in May was up 27% over May a year ago.

Singleton is convinced that there is a marriage to be made between newspapers and Internet. “There are those who think our industry is in decline. It’s really not. It’s in change. We’re changing from an old business model very gradually to a different business model and sometimes some of the seed corn falls out of the wagon when you’re getting it over the other side.

“Also we’re having a choppy year; we may have a choppy year next year and we may have a choppy year the following year. But the business we’re developing is an outstanding business.”

Newspapers are still trying to figure out what works and what doesn’t in the online world and what causes print reader distress. A few examples:

At the New York Times the Times Select project in which non subscribers to the Times pay $49 annually for access to various columnists has driven about $6 million already in to the Times’ bank account, according to publisher Janet Robinson.

So it is indeed possible to charge for web content as long as you have done your homework and have chosen the content that research tells you people are willing to pay for.

But the Wall Street Journal international editions that have made such a big deal since they went tabloid last September of how they tell print readers to find further information on the web, are discovering that is not always welcome information. Some readers apparently think that can be taken too far and that the print reader is being short-changed.

Richard Zannino, CEO of Dow Jones, said recently at the annual meeting of the Society of American Business Editors and Writers that the international readers are not so happy with being told so often that more information is available on the web site. “If you are putting too many refers in print to online, readers think you have cheated them, that you have taken something out of the print edition,” he said.

So, there needs to be a happy medium that print covers a subject well and then sends the reader online for more detail. If print has not been thorough and the reader is told there is far more information online then print has not done its job and the print reader feels cheated.

Howe does that apply to those newspapers getting rid of their stock listings and their TV sections. They all use the spin that that material is better suited to the web, but in truthfulness the real reason for dumping it is to make large savings, particularly newsprint. But will the public accept?. The New York Times Company says it will save $12 million in newsprint costs this year via using thinner newsprint and getting rid of stock tables and TV listings. That’s no small change! Add the $6 million of new income from Times Select and one wonders why the Times’ numbers aren’t coming out better than they are announcing.

And it is not just dumping editorial copy. Now advertising is encroaching into areas that had until now been considered taboo. The New York Times has announced that it will start running ads, at premium prices, on the front page of its business section, in a strip at the bottom of the page.

Why would that bastion of editorial give up that prime editorial space? At an editorial meeting editor Bill Keller put the case succinctly: Given the choice between running such ads or losing reporting positions to cut costs, he would rather keep the reporters.