Inky's not quite in the pink
It has been a long time since a group of investors got together to buy a local newspaper in a town as big as Philadelphia, so you gotta love it when the home team wins.
The Philadelphia Inquirer and Philadelphia Daily News are being purchased for $562 million by a local public relations luminary and a few wealthy investors, who, in turn, are being backed by a syndicate of banks.
The Wall Street Journal reported that its sources said the Philly papers this year will produce about $62 million in earnings before interest, taxes, depreciation and amortization (EBITDA). If so, the papers were sold at 9x EBITDA, as compared with the 9.5x EBITDA McClatchy is paying for all of Knight Ridder and the 11.5x EBITDA that MediaNews and partners are paying for the four papers divested earlier by McClatchy.
The price the buyers are paying in Philadelphia is roughly 10 times greater than the $55 million the papers fetched when they were sold in 1970 to the Knight family (so McClatchy faces a substantial tax bill on the gain). The Knights later merged with the Ridders to create the fabled newspaper chain that’s now in the final stages of liquidation.
It will take more than the pride of local ownership, however, to put the Inky and the News back in the pink of health.
Like all metros, the Philly papers have been suffering from declining circulation, shrinking ad share and the migration of readers to the suburbs, the electronic media or both.
Like many metros, the Philly papers have hefty operating costs, owing to classic, if not to say anachronistic, big-city union contracts that prescribe high wages, generous benefits, stringent manning requirements and complicated work rules.
Here’s one example of union-imposed inefficiency: Even though both the Inky and News come off the press at approximately the same time, the papers must be hauled to the same distribution points by two separate trucks piloted by two well-compensated Teamsters.
In the days when newspapers enjoyed near-monopoly command of their markets (and gasoline was 25 cents a gallon), publishers could afford to go along with featherbedding practices like these. In the face of low-cost print and online competitors today, the Philly papers – and many others like them – need to improve their economics or face extinction.
One potential casualty of union intrangisence could be the Daily News. In the run-up to the sale of the Knight Ridder papers, some Wall Street analysts argued that tens of millions of dollars could be saved instantly by shutting the financially struggling Daily News.
It appears the new owners are committed to trying to turn the Daily News into a going concern , based on their decision to invest much more equity in the deal than a financially-oriented buyer would have. A financial buyer, such as Yucaipa and several of the runners-up in the deal, ordinarily would put up approximately 25% of the equity in the deal and borrow the rest. In this case, the local buyers are kicking in $200 million, or roughly 35% of the purchase price. They are financing the rest, to the tune about 5x EBITDA vs. the 7x or more that a financial buyer would desire.
Because this deal is less leveraged than it might have been, management potentially will have more resources to invest in building the business than if the papers were owned by a financial buyer. (A highly leveraged business has to earmark more of its profits to repaying debt, instead of, say, upgrading the mailroom, boosting marketing or launching new targeted auto or real estate publications.) But neither the investors, nor their lenders, can afford to be infinitely patient.
Notwithstanding my earlier cautionary remarks, I want to make it emphatically clear that I am not anti-union. My father was a union printer, my mother was a union member and I was an active member of the Chicago Newspaper Guild for the first 10 years of my career. I appreciate what unions have done – and can do – for their members.
But unions need to understand that it’s no longer business as usual for the newspaper industry – and probably won’t ever be again. If unions don’t relax their demands and yield some of their prerogatives, they will cripple, or even fatally wound, the publications that employ their members.
You can be sure this subject will come up when the new owners meet with union leaders to renegotiate the key labor contracts expiring this summer.
Even as labor has to step up to a new level of responsibility, the new owners, for their part, will be wise to demonstrate that they respect the traditional division between the newsroom and the countinghouse.
Bruce Toll, the home-building billionaire who is taking the largest individual stake in the Philly papers at a reported $25 million, said he wants to own the papers so the Inquirer will publish more stories in its business section. I trust he doesn't mean that he wants the paper to write more stories about his friends and favored interests.
Brian Tierney, the well-connected Philly PR wizard who led the local group, has a number of prominent business clients, has been a strenuous advocate for the Catholic Achdiocese and has been active in Republican Party politics. I hope he means it when he says he intends to "beat the crap" out of anyone who doesn't respect the sanctity of the news.
If both men follow through on thier promises to play it straight, they will surpass the last local owner of the Philly newspapers, the irrascible Walter Annenberg.
“Annenberg had numerous detractors during his regime at The Inquirer,” the newspaper reports delicately on its web site. “The most pervasive criticism was that he used his newspaper as a personal vehicle for rewarding those he favored and inflicting punishment on those in his disfavor.”
Here's hoping we don’t pass that way again.
The Philadelphia Inquirer and Philadelphia Daily News are being purchased for $562 million by a local public relations luminary and a few wealthy investors, who, in turn, are being backed by a syndicate of banks.
The Wall Street Journal reported that its sources said the Philly papers this year will produce about $62 million in earnings before interest, taxes, depreciation and amortization (EBITDA). If so, the papers were sold at 9x EBITDA, as compared with the 9.5x EBITDA McClatchy is paying for all of Knight Ridder and the 11.5x EBITDA that MediaNews and partners are paying for the four papers divested earlier by McClatchy.
The price the buyers are paying in Philadelphia is roughly 10 times greater than the $55 million the papers fetched when they were sold in 1970 to the Knight family (so McClatchy faces a substantial tax bill on the gain). The Knights later merged with the Ridders to create the fabled newspaper chain that’s now in the final stages of liquidation.
It will take more than the pride of local ownership, however, to put the Inky and the News back in the pink of health.
Like all metros, the Philly papers have been suffering from declining circulation, shrinking ad share and the migration of readers to the suburbs, the electronic media or both.
Like many metros, the Philly papers have hefty operating costs, owing to classic, if not to say anachronistic, big-city union contracts that prescribe high wages, generous benefits, stringent manning requirements and complicated work rules.
Here’s one example of union-imposed inefficiency: Even though both the Inky and News come off the press at approximately the same time, the papers must be hauled to the same distribution points by two separate trucks piloted by two well-compensated Teamsters.
In the days when newspapers enjoyed near-monopoly command of their markets (and gasoline was 25 cents a gallon), publishers could afford to go along with featherbedding practices like these. In the face of low-cost print and online competitors today, the Philly papers – and many others like them – need to improve their economics or face extinction.
One potential casualty of union intrangisence could be the Daily News. In the run-up to the sale of the Knight Ridder papers, some Wall Street analysts argued that tens of millions of dollars could be saved instantly by shutting the financially struggling Daily News.
It appears the new owners are committed to trying to turn the Daily News into a going concern , based on their decision to invest much more equity in the deal than a financially-oriented buyer would have. A financial buyer, such as Yucaipa and several of the runners-up in the deal, ordinarily would put up approximately 25% of the equity in the deal and borrow the rest. In this case, the local buyers are kicking in $200 million, or roughly 35% of the purchase price. They are financing the rest, to the tune about 5x EBITDA vs. the 7x or more that a financial buyer would desire.
Because this deal is less leveraged than it might have been, management potentially will have more resources to invest in building the business than if the papers were owned by a financial buyer. (A highly leveraged business has to earmark more of its profits to repaying debt, instead of, say, upgrading the mailroom, boosting marketing or launching new targeted auto or real estate publications.) But neither the investors, nor their lenders, can afford to be infinitely patient.
Notwithstanding my earlier cautionary remarks, I want to make it emphatically clear that I am not anti-union. My father was a union printer, my mother was a union member and I was an active member of the Chicago Newspaper Guild for the first 10 years of my career. I appreciate what unions have done – and can do – for their members.
But unions need to understand that it’s no longer business as usual for the newspaper industry – and probably won’t ever be again. If unions don’t relax their demands and yield some of their prerogatives, they will cripple, or even fatally wound, the publications that employ their members.
You can be sure this subject will come up when the new owners meet with union leaders to renegotiate the key labor contracts expiring this summer.
Even as labor has to step up to a new level of responsibility, the new owners, for their part, will be wise to demonstrate that they respect the traditional division between the newsroom and the countinghouse.
Bruce Toll, the home-building billionaire who is taking the largest individual stake in the Philly papers at a reported $25 million, said he wants to own the papers so the Inquirer will publish more stories in its business section. I trust he doesn't mean that he wants the paper to write more stories about his friends and favored interests.
Brian Tierney, the well-connected Philly PR wizard who led the local group, has a number of prominent business clients, has been a strenuous advocate for the Catholic Achdiocese and has been active in Republican Party politics. I hope he means it when he says he intends to "beat the crap" out of anyone who doesn't respect the sanctity of the news.
If both men follow through on thier promises to play it straight, they will surpass the last local owner of the Philly newspapers, the irrascible Walter Annenberg.
“Annenberg had numerous detractors during his regime at The Inquirer,” the newspaper reports delicately on its web site. “The most pervasive criticism was that he used his newspaper as a personal vehicle for rewarding those he favored and inflicting punishment on those in his disfavor.”
Here's hoping we don’t pass that way again.
posted by Newsosaur at 3:51 PM
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