Wednesday, July 18, 2007

PCM dumps publishers

Private Capital Management, once the most enthusiastic investor in newspaper stocks, has dumped more than $2.5 billion in publishing shares, or 62.5% of its holdings, according to new Wall Street research.

PCM, which held $1.5 billion in newspaper shares at the end of March, became something of a household word in the newspaper industry when Bruce S. Sherman, its chief executive, forced the liquidation of Knight Ridder in 20o6.

The aggressive selling by the Florida-based investment firm in the last 2½ years is one of the reasons that newspaper stocks have lost some $15 billion in value since 20o4, says securities analyst Paul Ginocchio of Deutsche Bank.

“After reaching a peak position of almost $4 billion [at the beginning of 2005], PCM has been reducing its huge stake in the industry every quarter since the fourth quarter of 2005,” says Paul. While he says most of the recent decline in newspaper stocks are attributable to falling Wall Street earnings expectations “caused by weak print advertising trends and contracting margins, we think the headwind from PCM selling hasn’t helped.”

As illustrated in the table below, PCM at one time owned nearly a quarter of the stock of such companies as Belo, Lee Enterprises and McClatchy Newspapers. Today, those positions have been reduced by more than half. Other major PCM holdings that have been reduced significantly are the shares of Media General, New York Times Co. and Gannett.

When PCM forced the sale of Knight Ridder, Bruce was counting on robust competition for the assets to boost the value of his extensive publishing portfolio. Quite the opposite occurred.

The only bid for the company came from McClatchy Newspapers, which made a barely respectable offer – and then added insult to injury by dumping such venerable properties as the Philadelphia Inquirer and San Jose Mercury News.

KRI shareholders who got a combination of cash and McClatchy stock at the time the sale were in for a rude shock, too. McClatchy’s shares have fallen 33.7% since June, 2006.

Paul believes Lee’s shares may have been the most depressed by PCM, whose trading represented up to 9% of the activity in the issue in the last quarter of 2006 and the first period of 2007. “The ‘good’ news for Lee is that they are closer to the point where PCM has fully exited the stock than several of the other newspaper names,” says Paul.

Depending on the speed with which PCM disposes of the other publishing stocks in its portfolio, it may take up to a year for Bruce to get clear of Media General, McClatchy and Belo.


Anonymous Anonymous said...

This only makes me more confused about the decent performance of Belo stock.

1:20 PM  
Anonymous Anonymous said...

If PCM is dumping newspaper stocks, it seems to me the asking prices for small daily newspapers should be sharply reduced. A buyer of a small daily newspaper in Kansas for example can't be expected to pay 8 or 9 times cash flow because fewer people in Kansas are reading newspapers and fewer advertisers are running ROP ads. The newspaper industry will never go back to the days where small town daily papers fetched 2 or 3 times annual revenue

1:44 PM  
Anonymous Anonymous said...

Sure would like to know how much money Sherman lost forcing the KRI sale.

And how much he's lost on the convert to MNI.

11:06 PM  

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