What Are They Thinking? Tribune in Final Bidding to Buy U-T San Diego
Tribune Publishing is one of three final bidders on the acquisition of U-T San Diego, the entity formerly known as the San Diego Union-Tribune, according to several confidential sources. For Tribune Publishing, spun off from Tribune Broadcasting six months ago, San Diego—California’s second largest city, and the tenth most affluent metro area in the nation, with a population of 3.2 million—would become Tribune’s ninth metro market, and a new twist to C.E.O. Jack Griffin’s clustering strategy.
While the acquisition could have closed as early as today, it’s now been held up by a familiar concern in newspaper property sales: pension obligations. U-T San Diego owner Doug Manchester had given Tribune Publishing a short-term exclusivity agreement, as it worked to a completed purchase agreement. That exclusivity is lapsing, as further due diligence is being done and bids reconfigured. The news of T-Pub’s possible acquisition comes just days before Tribune Publishing’s announcement of annual results on March 4. (Asked about the bid, a Tribune Publishing spokesman replied, ”We don’t comment on rumor or speculation.”)
The purchase price would likely be in the range of $80-90 million, with the buyer also assuming the pension obligations of the U-T, estimated at more than $60 million. If Tribune were to finally close the deal, it would be exclusive of the real estate on which the newspaper sits, itself worth an estimated $35-50 million.
News of the imminent sale comes at a time of increased roiling in the newspaper property market. The Digital First Media sale, involving 75 dailies, should be announced soon (“Cerberus, Apollo bidding for Digital First Media”) and owner Mort Zuckerman just put the storied New York Daily News up for sale. Further, New Media Investment (né Gatehouse), backed by Fortress Investments, has become a major national roll-up player, with recent transactions in Las Vegas, Providence and the southeastern U.S. As print-ad revenues continue their steep decline, more publishers want out.
First published at Capital New York
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As intriguing as is Tribune Publishing’s possible purchase of a big city adjacent to its Los Angeles Times is the re-emergence of two possible bidders.
NEW REGIONAL NONPROFIT MODEL
“There would be real concern among people in San Diego about L.A. people coming in, of sending down Times reporters,” Bill Geppert told me this weekend. Geppert’s concern about the Tribune bid is both civic and competitive. The recently retired head of Cox Communications in San Diego, Geppert has joined with businessman and civic benefactor Malin Burnham, who has led an effort to buy the U-T and form a community nonprofit to run it. That effort has heated up recently, and Geppert says the group of about 15 local philanthropists has pledged more than half the money needed to buy the newspaper assets. The group’s driving theme: sustain the paper through more digital dislocation—and add back to the reporting staff.
“U-T could set the pace and prove out a national model,” Burnham says. Burnham’s push can be seen as both idealistic and part and parcel of another metro newspaper trend. That trend, though still underreported, shows three billionaires investing longer-term in their metro newspapers. John Henry’s Boston Globe, Jeff Bezos’ Washington Post and Glen Taylor’s Minneapolis Star-Tribune. Their shared thinking: the next three to five years will continue to be tough ones, financially, but only through continuing investments in the journalism and the (digital and print) products, can success be found post-2020.Theoretically, if a philanthropic, community-based, nonprofit worked in San Diego, it could spur interest in other cities with ever-struggling dailies, though, to be sure, there are a host of management and governance issues implicit in a nonprofit model.
Burnham’s group may or may not have a billionaire member, but could offer capacity for a purchase, and possibly for longer-term investment. That’s a big “could.” Despite the connectedness of both Burnham and Geppert, raising the rest of the money won’t be easy, as would-be benefactors look both at the tough newspaper business and those growing pension obligations. (Reportedly, recent payments against those pension liabilities have been minimal.)
Any benefactors or buyers have to ask themselves the question of how long the operation’s approximate $20 million in annual earnings will last. As optimistic as Burnham is about reinvesting profits in local reporting resources and in community organization funding, it’s easy see how the continuing decline of metros could burst that bubble.
Burnham, 87, and Geppert, 55, both call 72-year-old Manchester “Papa Doug,” the almost-universal appellation that seems normal in San Diego and bizarre to the rest of us. Both cite Manchester’s own good community works and his larger dedication to San Diego, and say he has pledged to work with them to turn over the U-T to a community group wanting to run it for long-term civic interest.
Yet Papa Doug, who didn’t return a call for comment on the sale, hasn’t given the Burnham/Geppert group what it says it has needed to complete community fund-raising and structure-building: its own window of exclusivity. Though almost three windows of 90 days have passed since Manchester first started letting locals know last summer that he wasn’t built to sit behind a desk and run a newspaper enterprise, Burnham’s group hasn’t gotten that commitment in this cat-and-mouse game of selling and buying, which Manchester is handling himself, sans broker.
The civic leaders say Manchester has said all the right things about turning over the enterprise, at a price somewhat below what he may be able to get for a “commercial offer.”
“Our investors won’t pay a commercial price,” says Geppert, apparently concerned about funding what they would consider an oversized profit for Manchester, who paid “above $110 million” for the assets now valued at roughly $130-$140 million, when its related real estate assets are included.
Still, Burnham is optimistic that his own group would finalize its own offer this week, and then ask for 60 days to complete it, if Manchester provisionally accepts it.
Then, there’s the third player in this competition, which often has seemed like shadow-boxing.
John Lynch, a veteran broadcast executive, was tapped by Manchester early on to lead the company. Lynch had served as C.E.O., before Manchester appointed Mike Hodges as his successor a year ago, and Lynch took up a position as investment advisor to Manchester.
About the same time, Manchester encouraged Lynch to buy the company himself. Since last summer, Lynch has been trying to line up a private equity partner to get his deal done with Manchester—a deal which, unlike the Tribune or Burnham ones, could include the real estate as well. In this go-round—he, too, says he is submitting a new bid this week—he may have lined up a name familiar to those tracking newspaper property sales of the last half-dozen years, as a would-be partner: Ron Burkle. Burkle, who heads Yucaipa Companies and made his fortune in part on grocery chain roll-up, was mentioned early and often as the L.A. Times, Philadelphia Inquirer and other titles came up for, or looked like they would come up, for sale. Despite those frequent mentions, none of his bids for newspapers bore fruit.
Given all the activity, and re-bidding, we’d expect a deal to be announced fairly soon.
Yet, given the three-ring circus, the on-again, off-again nature of the sales talks, new hold-ups could well make themselves known.
SO-CAL ROLL-UP?
For Tribune, Jack Griffin’s clustering strategy—be the last (print) man standing in big metro areas—is fundamental.
The move to buy the U-T fits with Jack Griffin’s announced and rapidly enacted strategy of clustering print-based assets in and around current Tribune metro markets. Griffin sewed up assets both in Maryland, buying the Capital in Annapolis and the suburban Carroll County Times, and then the Sun-Times suburban assets, bolstering respectively hisBaltimore Sun and Chicago Tribune.
Then, there are, ironically, in this time of great ongoing digital disruption, the presses. If so much of current newspaper economics is about more profitably managing decline, then the ability to highly utilize presses in one location—and get rid of them in another—comes in at the top of the list. The L.A. Times could well print the Union-Tribune, and ship it the couple of hours south. That would mean earlier print deadlines; that’s what’s been going on in many areas, given press synergy strategies, and it’s one that remaining print readers are getting accustomed to.
As newspaper revenues, staffs and businesses have shrunk, the inevitability of a roll-up of newspaper properties has increased. I’ve written about that likelihood in southern California for several years, and again (“What Splitsville Tells Us and New Intrigue in L.A.”) when Tribune Publishing formally became its own entity last August. When Jack Griffin’s surprisingly appointed civic champion, and graduated private equity strategist, Austin Beutner as publisher of The L.A. Times, we saw the reinforcement of that roll-up possibility.
The greater Los Angeles D.M.A. has painted a picture of newspaper dysfunction, with multiple bankruptcies, slow bleeding of staff resources and the soap opera that Aaron Kushner’s attempted turnaround of the Orange County Register all figuring in the tragicomedy.
If the Tribune were to complete its U-T deal, the acquisition would create dominance in a huge market area. Add L.A.’s D.M.A. of 18 million people to San Diego’s 3.2 million, and Tribune will “own”—as much as any “newspaper” company can still lay claim to own—the largest geographic concentration in the country. Further, don’t expect that this roll-up will be the last.
Only two other large daily newspaper companies can be found in the region. One—the beleaguered Orange County Register, again in turnaround from loss under new publisher Rich Mirman—is ripe for takeover. The Register’s Orange County home sits plum between Los Angeles and San Diego, allowing a bigger Tribune Publisher to further squeeze it, after lawsuits and acrimony of various kinds. With liabilities exceeding $70 million, though, and lots of legal entanglements, any deal for the Register (and its now sister,Riverside Press Enterprise) would likely take a while.
The other bigger L.A.-based newspaper company is already for sale, though it has proven among the least attractive assets offered to the market by Digital First Media. DFM’s Los Angeles News Group struggles with profitability. Even its stronger titles, the Daily News, and Long Beach Press Telegram, pale in scale to a resurgent L.A. Times/Tribune Publishing. Tribune Publishing could end up picking up these assets some time after the DFM sale, an announcement of which I expect by the end of March.
One fascinating question, here: How will Tribune Publishing shareholders react? Wednesday’s financial results won’t be rosy, as print advertising decline swamps all of the other revenue progress Griffin will be able to yet point to. Will the idea of buying into yet another metro market, albeit a semi-connected one, be greeted with applause? Further, Tribune Publishing emerged after its split from broadcast-centered Tribune, with little to no pension debt; the Tribune Company kept that obligation. In this case, though, more than $60 million in debt obligation will go to the buyer, adding another burden to Tribune’s tough budgeting exercise.
San Diego didn’t used to be a center of media attention. For 81 years, the stodgy, if steadfast, San Diego institution was owned by the Copley family. In the depth-of-the-recession 2009, it became the subject of a fire sale to private equity (Platinum Equity) and then another sale to Doug Manchester two quick years later. So a new buyer will be its fourth owner just in the last six years. That’s emblematic of the chaos of American newspapering.
Manchester’s tenure won national attention, but not of the kind he wanted. Three years ago, New York Times media columnist David Carr derided his partisanship, writing that the developer used the daily “like a brochure for his various interests.” In the brochures and on travel websites, San Diego is paradise personified. In its newspaper tribulation, it looks just like Anytown, U.S.A.
