Wednesday, March 18, 2009

Signs of life – and more cuts – in San Diego

The pending purchase of the San Diego Union-Tribune by a financially oriented buyer signals that at least one investor sees signs of life in newspapers. But some serious cost cutting likely lies ahead – perhaps even before the transaction closes.

After some nine months on the market – an amount of time that would have been unthinkable for a trophy paper like this just a few years ago – the Union-Tribune today was sold to Platinum Equity, a Beverly Hills buyout shop that specializes in turning around distressed businesses.

Back in the day, would-be purchasers would have swarmed the Union-Tribune and bid the price to the stratosphere. Prior to her death in 2004, just about every publishing CEO in America would schlep to La Jolla on his private jet once or twice a year to beg the late owner, Helen Copley, to sell the paper to him, money being no object.

But the paper, which reports that its sales have fallen by a staggering 40% since 2006, had languished on the market since July, a triple victim of skepticism over the future of newspapers, the collapse of the San Diego housing market and the cratering global economy.

The price Platinum will pay for the paper was not revealed, but the Voice of San Diego said real estate experts pegged the value of 13 prime acres owned bythe paper at more than $100 million. San Diego City Beat said the sale price was approximately $15 million, a number too low to believe if the estimated value of the real estate is anywhere near correct. The Wall Street Journal put the price at “less than $50 million,” which sounds more believable.

The prospective new owners gave some insight into their likely operating philosophy by announcing they will be advised by David Black, the acquisitive and efficiency-minded Canadian publishing entrepreneur who in recent years scooped up papers from Akron to Honolulu and encircled the struggling Seattle dailies with a network of seemingly prosperous weeklies.

Shortly after buying the Akron Beacon-Journal in the summer of 2006, Black reduced the newsroom staff by 25% and eliminated jobs in other departments throughout the plant. Earlier this year, Black cut the newsroom of the Honolulu Star-Bulletin by 18% as the paper was turned into a tabloid.

Together, Platinum and Black are poised “to bring a strong operational focus” to the Union-Tribune, according to a statement issued by Louis Samson, the Platinum executive who is piloting the transaction.

That bit of finance-ese means the new management will be seeking ways to wring fresh efficiencies out of the newspaper, which has undergone a series of staff cuts for the last three years to both respond to falling sales and groom its bottom line to appeal to potential purchasers.

The newsroom has been chopped by about a third to about 250 individuals from more than 350 people in 2007. In January, the company warned it might have to make further staff cuts and imposed mandatory unpaid furloughs, froze merit pay increases and suspended contributions to 401k accounts, according to this article in the paper.

These and certain other economies may be required by Platinum before it closes the deal.

Private-equity buyers like Platinum focus on cost cutting in the early days after they buy a company to be sure they are able to produce sufficient profits to repay the debt they borrow to finance a deal. If they fail to do so, the deal can go sour, as occurred in the bankruptcies that quickly followed the buyouts of the Tribune Co., Minneapolis Star Tribune and Philadelphia Newspapers LLC.

In the fullness of time, Platinum also would hope to raise revenues through improved sales management and an eventual uptick in the general economy. Financially oriented buyers like Platinum generally plan to sell a refurbished company for a handsome profit within three to seven years after they buy it.

With such papers as the Austin American-Statesman, Miami Herald and Chicago Sun-Times on the block, other bargain-hunting investors will pay close attention to this deal to see if it is something they want to try for themselves.

Who knows? If Platinum turns the Union-Tribune back into the sort of prized asset it used to be, that might put some life into the flat-lining shares of the publicly traded newspaper companies.


Blogger nick said...

next on newspaper owners Sun Media Corporation buy The McClatchy Company or Playboy Enterprises buy GateHouse Media or The Walt Disney Company buy Sun-Times Media Group and E. W. Scripps Company and Journal Register Company and Evening Post Publishing Company

6:42 PM  
Anonymous Anonymous said...

Gee, and where have I heard before of an agile and wealthy private fund hoping to cash in big by buying a newspaper? Was it Minneapolis, where the mysterious Avista lost its shirt on the Strib. Or was it in Philadelphia, where local get-rich entrepreneurs felt they couldn't lose on the Enquirer-News purchase? Or was it Blethen snapping up a chain of newspapers in Maine? Or was it Lee, which was formed by entrepreneurs who felt they couldn't lose getting into the newspaper business with both feet. Perhaps Sam Zell also comes to mind with his one-man purchase of Tribune. Oh, yes, and then there is McClatchy, which thought it created a new newspaper empire with the purchase of Knight-Ridder. The bottom line is the country is now littered with the failed efforts of once wealthy entrepreneurs who felt they couldn't lose owning a newspaper franchise.

7:44 PM  
Anonymous Anonymous said...

Step 1 - gut the newspaper
Step 2 - express surprise that profits -- PROFITS -- continue to decline
Step 3 - default on debt (unless they only pay $1)
Step 4 - lament all the factors bringing down the newspaper even though they all pre-existed the sale and the new company did nothing to adapt their business model to the internet age

Note: There is no step that has them re-selling the editorially hamstrung and advertising starved SDT at a handsome profit. That isn't going to happen.

Could hopes of making a buck just be a screen? Do they really believe there will be some pot of gold at the end of the rainbow after this massive economic typhoon and newspaper-wide tsunami have passed? How might this firm hope to make a buck even if the newspaper continues to slide?

6:12 AM  
Anonymous Anonymous said...

Absolutely. The Newspaper business is in a world of hurt and, sadly I don't think that there is anything that save them. They owe too much, their leadership is lacking, uninspired and incompetent, consumer preferences changes too drastically and advertisers have gone to more powerful and less expensive outlets like Craigslist and Google Adsense.

Newspapers are dogged by out of control costs, a antique business model and the Associated Press cooperative that has become directly competitive to them.

What was laughable is that instead of innovating, these organizations are starting to turn on themselves in litigation.

More innovation is needed.

6:47 AM  
Anonymous Anonymous said...

Do you think really borrowed money to buy the U-T? Or, let me rephrase that, would anyone lend them money?

8:15 AM  
Anonymous Anonymous said...

As authoritative as this piece sounds - it has no less than four errors of fact and a couple of the conclusions drawn from the poisioned tree also are incorrect. PE may chose to do some of the things outlined above but the Newsosaur has no idea - so instead of admitting to wild guessing disguised as pontificating authority - he yammers along with the same tired refrain that we're all doomed. Nice work if you can get it. We may all crater into oblivion but at least we'll do it from inside the ropes - not braying about it from a distant field.

3:26 PM  
Anonymous Anonymous said...

6:12 appears to have it about right, looks like an OrZELLian shell game. The banks' players will take their handsome fees, the financing institutions (their securities holders, really) and probably the employees will get hosed when the bankruptcy is filed, the company will emerge from the bankruptcy at least modestly profitable, and the real estate will be sold for huge profit when the market comes back. If anyone wants the paper at that point, it will be a bonus.

That was always Zell's fallback, and PE probably figures that if he can do it with a bunch of radio yahoos, they have a much better chance of pulling it off with a proven newspaper guy.

4:04 PM  
Anonymous Anonymous said...

Here's a look-see at the head of Platinum and his wife. OMG

Tom Gores

Lisa Gores

9:25 AM  
Anonymous Anonymous said...

An in-depth article on David Black:

12:34 PM  
Anonymous Anonymous said...

The editor in me just had to let you know there is a typo your article--beleive. Aside from that the content had me riveted. Since I live in San Diego and used to work for the UT/SignOn I have been waiting and watching for the deal to be announced. Now the real fun begins. I have a hard time believing print products are doomed forever. Time will tell.

4:54 PM  

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