Tribune Auction Shows Newspaper Valuations Are Sliding Quickly
Important Details: The Tribune Company’s board meets Saturday (Jan. 20) to assess bids for the company. After a four-month auction, it looks like that board is in for a long weekend as three disparate bids, all received at the deadline, show just how tricky – and low – newspaper valuation is right now.
The Tribune Company is the third-largest newspaper publisher in the U.S., with 11 largely big-city dailies. The auction was sparked by the Chandler Trusts, holder of 20% of the Tribune shares. The Trusts began pressuring Tribune management last year, believing that the company’s share price was not being maximized. Now the Trusts are a prime bidder for the whole company, having bid about $7.6 billion, though the bid dimensions are more complicated. The Trusts would place the company’s newspaper holdings, its Internet holdings (including the high-growth CareerBuilder and Classified Ventures) and the beloved Chicago Cubs baseball franchise in one company, with the Trusts holding 51% and taking on private partners that may include Evercore Partners; Centerbridge Partners, LP; and, curiously, Rupert Murdoch’s News Corp. All the broadcast properties would be split into a second company, with no Chandler Trusts interest. Current holders of Tribune stock, other than the Chandler Trusts, would get a cash payment and shares in the broadcast company. Overall, the offer places a value of about $32.50 per share on the company, a premium of about 5% over pre-bid prices.
The second offer, well-described by Allan Sloan in the Washington Post, offers its own complications. L.A.-based billionaires Ron Burkle and Eli Broad would invest more than $500 million, receiving equity in the company that could increase to 30% or more over time, and several board seats. Their investment combined with the more than doubling of Tribune debt (some $10.5 billion in new debt would be assumed) would allow Tribune to pay a dividend of about $27 to each shareholder, each of whom would receive shares in the new company as well. In effect, Burkle, who bid on the Knight Ridder papers last year, and Broad would assume control of the company.
The private equity Carlyle Group is believed to have made the third bid, but only for the Tribune’s 25 remaining broadcast properties, not its other holdings. Details of that offer are not public, but the bid may be in the $4-billion-plus range and could give current Tribune management the funds and time it needs to restructure the remaining company.
The Tribune board and news industry observers have a dizzying group of numbers to sort out. Overall, though, it’s clear that none of the bidders is placing much of a premium on the Tribune newspaper holdings. The historical numbers give a picture of the decline in value. The Chandler Trusts sold their Times Mirror company to Tribune in 2000 for $8.5 billion. Now the whole company – essentially the old Times Mirror plus Tribune – is worth less than that combined, somewhere in the $7.5 billion range. Also, the Chandler Trusts pushed management to put the company up for sale because it was unhappy with the Tribune management’s own buyback share offer of $32.50 last summer. That’s the price it’s offering today.
The market’s wariness of newspaper properties was seconded by the recent reaction to the words of Scripps CEO Ken Lowe. Lowe told analysts last week that he was considering "options" for his 18-paper newspaper division. Those words rocketed Scripps’ share price to a 52-week high.
In Outsell’s Opinion: The reaction of investors – large and small – is based on solid numbers. Consider the sale of the Minneapolis Star Tribune by McClatchy Newspapers to Avista Capital Holdings, announced at the end of 2006. The $530 million price tag was less than half of the $1.2 billion McClatchy paid for the paper in 1998. The Star Tribune sale fetched 6.5-7x EBITDA. Contrast that low number to the sale of Knight Ridder in March 2006 (10x EBITDA) and the sale of Pulitzer Publishing to Lee Enterprises (13x) in January 2005. That slide in valuation is dramatic, essentially halved in two years.
The new valuations and the reaction to Scripps’ possible spin-off are based on two key factors. The major one is the flat-lining of newspaper print revenues. In addition, the market is realizing that the growth in these companies is coming from online media. More than half of Scripps’ earnings are now propelled by its Internet and cable ventures, up from just 17% in 2001.
Tribune’s current valuation (7.5x EBITDA) is hurt by its reliance on old media newspaper and broadcast TV revenues. Outsell also believes that its new media jewels – investments in CareerBuilder and Classified Ventures – have been further challenged by recent developments. When seven large newspaper companies announced their partnership with Yahoo! HotJobs, that gave new life to what had been a struggling, third-place CareerBuilder competitor. In addition, Yahoo! and its newspaper partners are now exploring auto- and real-estate-related partnerships, the core of Classified Ventures. Such competition means higher marketing costs for Tribune’s Internet investments and raises new questions about the value of those gems going forward.