Newspaper malaise chills M&A
News Corp. conceded the weakness of the M&A market for newspapers last week, when it abandoned its efforts to sell the Ottaway division that it acquired when it bought Dow Jones last year. Ottaway operates eight dailies and 15 weeklies in seven states from New York to Oregon.
Ottaway is not alone. No buyers have materialized to date for the combined 17 dailies, 138 weeklies and a dozens of ancillary properties that have been offered for sale since the beginning of this year by Landmark Communications and Sun-Times Media Group. (Landmark did have some luck today selling its Weather Channel, but it is agreeing to take $1.5 billion less than the $5 billion it was hoping to attract.)
Another 22 dailies and 39 weeklies potentially could be added to the market by Journal Register Co., which announced earlier this year that it would review its strategic options. Although this usually signals a business is up for sale, this over-leveraged company has to come to terms with its creditors before it can formally act to put itself on the block, according to informed sources.
Spokespeople for SUTM and JRCO either did not respond to calls or declined to comment for this article. (UPDATE 7.8.08: “We have strong interest and the process is under way,” says a spokesman for Landmark.)
“This is not a good time to sell newspapers,” says John Morton, the dean of newspaper analysts since 1971. The once ferociously competitive market for newspapers has been chilled, he explains, by historic declines in advertising and the yearlong tightening of the credit market.
While it’s entirely possible that transactions for some or all of the available newspapers may be announced tomorrow, the lack of interest in publishing acquisitions appears to be at a modern-day low.
According to records kept by Dirks, Van Essen & Murray, the leading newspaper broker, 91 dailies changed hands last year, 76 sold in 2006 and 101 transactions closed in 2005. Those totals included the mega-deals involving Dow Jones and Tribune Co. last year, Knight Ridder in 2006 and Pulitzer in 2005.
But only a handful of small dailies have changed hands in 2008. In the first six months of the year, Dirks completed only four transactions, as compared with 28 deals for all of 2007 and 28 deals throughout 2006.
The few deals that are being consummated often involve the sale of individual properties that can be consolidated with the operations of a neighboring buyer.
In one case, the New York Times Co. bought the paper in Winter Haven, FL, so all functions but news-gathering could taken over by its paper in neighboring Lakeland. And a publisher with a plant 30 miles away bought the 4.5k-daily Monticello (IN) Herald Journal, according to a press release from Dirks.
“The problem we are having with most deals that involve more than one individual property is a lack of purchasers,” says Larry Grimes, the president of W. B. Grimes & Co., whose firm has been brokering newspapers for 49 years. “That has to do with a couple of things. One is a lack of available financing to do the deals. But it also has to do with management at the top of some of the major groups, who, in my opinion, seem to be terrorized in terms of what do to next” in the face of shrinking revenues.
This is “especially true of the public companies” that once bid aggressively to expand their holdings but now appear to be chastened by the diminished value of their shares, says Larry. “There are strategic deals today that Gannett, Lee Enterprises, Media General and some other groups would have done in a heartbeat two or three years ago. It’s a mystery to me why they are sitting on the sidelines. They don’t seem to know what to do. They don’t seem to have a game plan.”
Will those traditional buyers come back?
“We’re going to find out,” says John Morton. “What really hit newspapers hard since the middle of last year is the collapse of classified advertising. We will know how bad this is when there is a recovery in the economy and newspapers see whether they were able to recapture what they have lost.”