Remember Belo’s Great Idea To Separate Itself Into Two Companies -- Newspapers and Everything Else -- So That Poor Newspaper Results Would Not Hold Back 'Everything Else'? So Far So Bad!

Philip Stone March 6, 2008

The stock market liked the idea so much that when Belo announced October 1 last year it was splitting itself into two separate companies, basically isolating the poorly producing newspapers from the rest of the company, that the shares got a massive 18.7% boost on the day. Investors seem to think it was a great initiative, never before done, to boost shareholder value. But time has shown it was the smart investor who actually saw that October day as a selling opportunity who really cleaned up.

The shares closed that day at $20.61. On February 8, the last day Belo existed before splitting itself in two the shares stood at $16.36, down 20% from the announcement day. Since the two companies AH Belo (newspapers) and Belo (everything else) started trading February 10 both have continued their downhill slides.

An investor who held 100 shares of Belo on the last day the company was whole had a valuation of $1,636. When trade started the following Monday that trader then held 100 shares of Belo (everything else) and 20 shares of the new AH Belo (newspapers). At Tuesday’s close the 100 Belo shares were worth $1,152 and the 20 AH Belo shares were worth $235, so the total value of the new holdings is $1,387 and that means total valuation is down 15% in the three weeks both companies have traded and down 33% from the day the reorganization was announced.  Not exactly what Belo management must have had in mind when they hatched the idea!

And the problem is that not only did the newspaper company shares fall (to be expected in today’s newspaper investment environment) but so has “everything else” – the broadcast side of the business that was supposed to do real well. Since the February launch, the newspaper company is down 19% but “everything else” is also down 13%. That compares with the Dow Jones Averages which during the same period were flat (up some 14 points.). So not only is the newspaper business being slammed by the money people, but they don’t seem to have much faith either in broadcast these days and the only real question is whether Belo managers are  relieved they are down just an average of 15% and might things have been worse if the company had been left whole?

Belo is not the only publicly traded media organization getting slammed financially. It seems almost impossible to believe but the Journal-Register Company’s shares have been suspended from active trading on the floor of the New York Stock Exchange (they can still be traded electronically) because they have dipped to under $1. At Tuesday’s close they were 90 cents each, down 2.17% on what was an up day for the Dow.

Now remember this is a company that owns 22 daily newspapers, with approximately 559,000 total daily circulation, and it also owns 346 non-daily publications, with total distribution of more than 6 million, plus 227 individual Web sites for the daily and non-daily newspapers as well as commercial printing and software development companies.

Results last year were dismal with advertising revenues taking a big hit plus the company invested heavily to turn itself into a multimedia company. And as thanks for looking forward and transforming itself for today’s media world Wall Street slices the share to less than $1, giving the company a total capitalization of just $35.24 million. Nonsense!

And then take a look at Gannett. It was only a few months ago that pundits were expressing disbelief its shares were less than $40, Now they must be bewildered for the shares closed Tuesday at $29.66! It shares have been slammed since announcing appalling January numbers with its operating revenue dropping 7.5% on big declines in real estate and employment ad sales. Both newspapers and televsion did poorly.

The drop through the $30 barrier means Wall Street values the company at $6.91 billion (there were shockwaves when that valuation fell through the $8 million barrier so it must have been a high Richter scale reading now that it has fallen below $7 billion.) And that’s for a company that is the largest US newspaper publisher with 85 daily newspapers including USA Today, and nearly 1000 non-daily publications and 23 television stations.

Perhaps the less said about McClatchy the better. In February it took a $1.47 billion write-down on assets – mainly on the 20 Knight Ridder papers for which it ended up paying some $4 billion plus $2 billion in debt assumption two years ago – and that was on top of a $1.37 billion write-down taken in November. Wall Street now values the whole company at just $764 million. McClatchy was the only company to make a bid for all of Knight Ridder and there must be executives at competitive boardrooms such as Gannett that are breathing a deep sigh of relief that they made the right decision.

There is one newspaper company, the New York Times Company, that is actually seeing strength these days, not because of good numbers but rather because it is under attack by a couple of equity funds that are recommending their own four-person slate for the company’s board of directors in an effort to shake up Times management. The shares are up some 35% since hitting their 52-week low on January 23 as investors gamble the equity funds may have some success.

But just so investors understand the true lay of the NYT land, Moodys Investors Service says it has placed the company’'Baa1' senior unsecured and 'Prime-2' commercial paper ratings on review for possible downgrade because of double digit declines in the Times' newspaper advertising revenue in December and January and seeing little hope for near term improvement.

What all of this means is that to say that publicly traded newspaper companies are out of favor with the money people would be a major understatement.  Who would have thought a New York Stock Exchange traded media company’s share would fall to less than $1?