With The Dollar Down So Much, Where Are The Foreign Buyers For US Newspapers, Or Could It Be At Any Price They’re Not A Bargain And Locals Need To Be Buyers For Other Than Financial Reasons?

Philip Stone March 20, 2008

With the dollar down as much as it is, where is the foreign money coming in to buy up US newspaper properties at bargain prices? Foreigners seem to be buying everything in sight in the US as the dollar crumbles, but apparently newspapers are not on the shopping list. Wonder why?

As newspaper broker Larry Grimes puts it, “I wish I had a pool of foreign buyers ready to look at U.S. newspaper assets. What a great time to be a buyer!”

Of course Grimes also points out the obvious, “I do have to question why a group would put itself up for sale in this market environment unless a) they were desperate for cash—which some are or b) the shareholders just want to cash out -- but why now or c) the newspaper has given up trying to figure out how to sell ads in the new e-media world.”

That seems to fit the reasoning on why the Seattle Times Company has put up for sale the Blethen Maine newspapers – three dailies and a weekly that 10 years ago the company borrowed $230 million to buy. Not exactly a great sales pitch is the fact that last year management at the flagship Portland Press Herald said the newspaper had lost 27% of its advertising linage from January 2005 – August, 2007. That kind of bad news has apparently continued forcing the newspaper to cut 27 jobs just last week.

Everyone understands that the Seattle owners are going to receive much less than the $230 million they paid, the big question is how much less? The thinking is that the newspapers will go for well under half the last sale price. Newspaper broker Grimes believes the sale price will probably be around 8-9 times annual operating cash flow (EBIDTA -- Earnings Before Interest, Taxes, Depreciation and Amortization). It might be a bit more if a big chain gets involved, but that’s unlikely although Gatehouse Media looks at everything that comes up for sale these days even though the company recently cut its dividend in half -- maybe there’s a squeeze there already on paying back existing debt and it may not want to add to that.

Not favoring a sale to foreigners is that the Maine newspapers have a very uneasy relationship with strong unions. Far better to buy in the Sunbelt where unions are not such a problem and growth is far stronger than in Maine where the economy is not exactly expanding these days.

Perhaps the most prominent foreign buyers in the US have been the Australians. Last November Macquarie Media Group of Australia via its American Consolidated Media LLC bought daily newspapers in Ohio, Maryland, Pennsylvania and Delaware in deals that brought the group’s ownership to more than 100 US newspapers in 10 states, making it the fifth largest owner of small community US newspapers.

Macquarie had entered the US market only in January, 2007 with a business plan of buying newspapers it saw as primary news providers in their community with a large base of advertisers and that had little dependence on national advertising. Its first buys were 40 newspapers it bought in Texas and Oklahoma, paying $80 million.

Domestic buyers are still around, but not as many as there have been in the past. “We are finding buyers who seem to have access to lenders, so deals are getting done,” says Grimes. “If you are a seller, however, be prepared for your legitimate buyer pool to be about one-third of what it was even a year ago. Of course should the economy come around, the ad market will pick up and we should start to see multiples for many types of properties rise again.”

While few may argue that the economy will eventually turn around for those increased multiples Grimes talks of, the big question even for that is when?  At the moment it looks more like $4 a gallon of gas could be with Americans come the summer, and that, most analysts agree, will really mean a pulling back of advertising. If newspapers, even profitable community newspapers, think they have it bad now then they haven’t seen anything if that $4 gas price hits the pumps.

The best chance for newspaper sales these days seems to be whether locals are interested. That’s what happened in Philadelphia when McClatchy sold the Philadelphia newspapers that it had bought in the Knight-Ridder sale. It was locals who wanted to buy The Los Angeles Times although Tribune instead went for the Sam Zell deal, and it will probably be locals -- perhaps even the newspaper unions – that could buy the Maine newspapers.

One example of locals getting together is in Sun Valley, Idaho, where a dozen residents have agreed to pool resources to try and buy the weekly, 14,000 circulation Wood River Journal which is being sold by Lee Enterprises.

The newly established Newsies LLC would like to increase the ownership pool to 30 locals because they have learned from the recent experiences in Philadelphia, Minneapolis, and other places where newspaper sales have occurred, that coming up with the purchase price is just half the battle – in these days of receding advertising revenues there has to be enough operating funds in the pool to actually keep the paper going, let alone pay off any debt.

A report issued this week by the Washington-based Project for Excellence in Journalism says more people get their news today via the Internet or television than from reading a newspaper. Again, not exactly a great sales pitch for trying to buy a newspaper unless one has local reasons for doing so.