Monday, June 30, 2008

Newspaper shares slid $23B in 6 months

The value of 11 newspaper companies traded on the public market since 2005 dove a combined $23.7 billion in the first half of this year, falling almost as much in six months as they had in the three prior years put together.

Wall Street’s intensifying repudiation of the industry means that the companies in the group have lost a cumulative $49.7 billion in market capitalization in 3½ years, vaporizing 51% of shareholder value since Dec. 31. 2004.

To date, the decline in newspaper shares has not had a commensurate impact on the compensation (details here) enjoyed by the chief executives of several of the affected companies.

As you can see in the table below, Journal Register Co. and the Sun-Times Media Group (nee Hollinger) suffered the worst losses in the 3½-year period, respectively shedding 99.1% and 96.9% of their value.

Journal Register is deemed to have a 72.9% chance of defaulting on its crippling debt, which in all likelihood would render its shares valueless. Sun-Times, which has a legacy of tax and other issues resulting from the criminal mismanagement of former chief Conrad Black, has been for sale all year, with no takers identified at this writing. Both publishers were booted off the New York Stock Exchange earlier this year, because their shares fell below the minimum price required for listing. They now trade on the Pink Sheets under the symbols JRCO and SUTM.

While the stocks of Lee Enterprises (LEE) and McClatchy (MNI) remain in good standing at the Big Board because their shares trade above well above the required minimum price of $1.10 apiece, their performance was not much better than that of the two publishers exiled to the Pink Sheets. Their market caps respectively have plunged 91.2% and 90.2% since Dec. 31, 2004.

MNI this year wrote off $2.8 billion, or 70%, of the $4 billion it spent to buy the bulk of the Knight Ridder chain in 2006, because the acquired assets were overvalued under the accounting rules described here. Required to undergo the same accounting exercise as McClatchy, LEE in May wrote off $862 million in the book value of its publishing assets, including nearly 53% of the $1.46 billion it paid for the Pulitzer newspapers in 2005.

Although they did not entirely escape the drubbing occasioned by the accelerating declines in advertising and circulation at most newspapers, the shares of the most broadly diversified publishers fared the best of the group. The value of Scripps (SSP), which is spinning its non-newspaper assets as of July 1 into a separate company called Scripps Network Interactive (SNI), fell a cumulative 12.4% in the 3½ years. Next best were the Washington Post Co. (WPO, down 23.5%) and News Corp. (NWS, off 32.5%).

In addition to Knight Ridder and Pulitzer, two other publishers that were publicly traded in 2004 have disappeared from the market. They are Dow Jones and Tribune Co., which respectively were acquired in late 2007 by News Corp. and a private transaction helmed by Sam Zell on behalf of the company’s employees.

Beyond the 11 publishing companies that have been continuously traded since 2005, the list below includes the performance of two relative newcomers. GateHouse (GHS) has lost 72.0% of its value since its initial public offering in November, 2006. A.H. Belo (AHC), the pure-play newspaper spin-off created by Belo (BLC), has slid 68.7% since its debut in mid-January, 2008.
Mere words cannot do justice to the carnage. You can click on the image to make it bigger, but the numbers won’t get any better.

Disclosures: I own shares of JRC, MNI and SSP and consulted for SUTM in 2007.


Anonymous Anonymous said...

Have you also noted that as the stock price tanked and buy-out or layoff plans increased, these companies are larding up executive ranks? MNI, for example, now has six regional vice presidents hauling in salaries in the $500,000range. I say range, because they are no longer reporting vice president salaries in their proxy reports. Back when they were a year ago, the salaries, bonuses and stock gifts were almost touching $600,000. GCI recently reorganized and has four instead of five vice presidents. What is worse, they seem to be burying the costs for this inflation of the front office by taking the salaries off the top of newspaper profits, rather than the category of administrative expenses, so they can report to stock owners the costs of the front office are not increasing. Another trend seems to be promoting human resources execs to vice president ranks. The inflation in top office ranks is as bad as the Pentagon, with associate assistant to the assistant secretary ranks, and it is difficult to see what these regional vice presidents do. It does fill up meeting rooms when execs gather to discuss what they are going to do to get their stocks back up.

4:30 AM  
Blogger tom said...

Just a note on your time frame: Knight Ridder's stock popped substantially in the years after the dot-com bubble deflated as investors/speculators craved profitable companies to throw their money at.

KR issued stock options to all its employees priced at $54, if I recall correctly ... the stock rose into the 80s before crashing and triggering the sell-off.

Point being most newspaper stocks were probably highly inflated in 2004, which would skew your numbers a bit.

6:51 AM  
Anonymous Anonymous said...

It is like watching a car wreck. I've left dead trees behind entirely in my day to day work, but I have contact through a couple contracts, lots of friendships from my days at Gannett and Landmark, and membership in the National Conference of Editorial Writers where it seems members are retiring or being shown the door faster than I can keep track.

I keep waiting to see some sign that the death spiral is ending, but I don't even see a leveling off .

7:07 AM  
Blogger SBV, CEO said...

The three that have performed the best in the group all have diversification well outside of local media. NewsCorp is obviously well diversified, WaPo has Kaplan, and Scripps has the cable networks. The industry looks more and more like the typewriter industry when computers came along... the only members in the industry that get any respect are those that have something else to offer.

8:09 AM  
Anonymous Anonymous said...

The Pulitzer's look to be just about the smartest people on the planet having jumped off the sinking ship into a lifeboat taking nearly $1.5 billion with them. That is timing the market my friends.

8:38 AM  
Anonymous Anonymous said...

Would bankruptcy be such a bad thing? Sure it would hurt small shareholders, but it might also clear out the front offices of clueless and troglodyte execs, and reduce boardroom overhead dramatically. This week, the Minneapolis Star-Tribune joined the Philadelphia Inquirer in deadbeat ranks by defaulting on some of its loans, and you point out that Journal-Register and Sun-Times are nearing that point. Media News cannot be far off, and both TRB and MNI look extremely precarious to me. So Rupert Murdoch gets to pick his choice of U.S. newspapers for firesale prices at bankruptcy sales. I seem to recall the Graham family's grandfather bought the Washington Post at a bankruptcy sale, and then became the dominant paper by buying the bankrupt Washington Times-Herald. The WaPo obviously made out fabulously in the process. Maybe a good shakeout is what is needed because, Lord knows, what they are doing now just plain ain't working.

9:00 AM  

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