The stunning plunge in the value of the Philadelphia Inquirer and its sister properties reflects not only the continuing contraction of the publishing business but also provides a rare glimpse into how badly newspapers have fallen out of favor among investors.
A decade or so ago, the Inky and the Philadelphia Daily News, its feisty tabloid sibling, would have been worth the batter part of a billion dollars in the unlikely event that their then-owner, Knight Ridder Inc., were willing to part with them.
On Monday, the papers – along with their companion website Philly.Com – were sold to a group of Philadelphia businessmen for $55 million, according to the Inky.
The new buyers will be the third owners of the Philly media group since the various assets of KRI were sold in 2006 at the prompting of activist shareholders who presciently thought it was a good time to exit the newspaper business.
The first buyer of the Philly papers was the McClatchy Co., which bought the entire Knight Ridder chain for $4.4 billion but then elected to sell the Philly papers (and certain other titles) without ever taking possession of them.
McClatchy flipped the Philly properties to Brian Tierney, a peripatetic public relations man who assembled a group of Philadelphia investors to pay $515 million for the publishing group.
As both the economy and newspaper ad sales tanked in the ensuring years, Tierney & Co. were forced into bankruptcy in 2009 when they could not keep up with the interest payments on more than $300 in debt they had borrowed to finance the acquisition.
The rights of Tierney’s unpaid creditors were acquired by Alden Capital Management and Angelo, Gordon & Co., two financial firms who specialize in buying distressed debt for pennies on the dollar to gain control of beleaguered companies that they then fix and sell to a new buyer at a profit.
After an extended tussle with Tierney, who tried to buy the company out of bankruptcy with an alternative bid, the distressed-debt investors won control of the Philly papers in 2010 by paying $139 million.
The fix-up planned by the investment firms fizzled, owing to continuously falling ad sales and stubbornly high operating costs that include a batch of hard-to-change legacy union contacts.
The frustrated owners earlier this year put the company up for sale, paving the way for the transaction Monday that put the value of these iconic newspapers at a fraction of what they were worth just six years ago.
This raises the question of breakup value. Have the new owners paid any more than they would get for liquidating the remaining plant, buildings, etc? Keep in mind that KR built a new printing plant 20 years ago. I can imagine that might have been a key consideration for anyone making a 6- or 7-figure investment here; the notion that at worst they'd come out even in a liquidation sale. If that's the case, what are the implications for the papers? Just askin ...
ReplyDeleteAngelo Gordon had an opportunity to make a lot of money on a news organization perfectly positioned for a huge turn around. 21st Century Newspaper and Media even suggested how - with over 140 major changes - and offered to put millions into the deal. But they blew it by thinking in industrial terms and bringing in a traditional managment team to tweak costs a bit here and there. This could have been, and still could be, one of the most profitable, influential, and rapidly growing news organizations in the country. But it won't be - the same old type of people doing the same old type of belt tightening are going to always get the same old type of results. Perhaps the next buyer will make the necessary changes and be the first to make a news organization highly profitable in the digital age. Alan perhaps you should take the lead and make the changes??
ReplyDeleteLove to know more about those 140 major changes that were proposed.
ReplyDeleteWe started from scratch, did a lot of research, and asked ourselves what a paper would look like and cost to operate if we started a new paper. It would be highly profitable and behave very differently than today's major market dailies. Local news guy
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