A Year Later, Did Dean Singleton Pay Too Much For the Four Knight-Ridder Turkeys He Bought?

The American Journalism Review (AJR) asked him just that recently, whether with hindsight he would have bought the newspapers knowing what he knows now and he answered, “I don’t know the answer to that question. It’s hard to put yourself back then. The fact is I didn’t know then what I know now. But we’re happy we bought them.” Not exactly a great endorsement on the buy.

It brings to mind the exchange between Gary Pruitt, McClatchy CEO, and Singleton, at a panel discussion at the American Society of Newspaper Editors (ASNE) at a time when the two – behind the scenes – were deep in negotiations for the privately-owned Media News to buy four Knight-Ridder newspapers from McClatchy. The panel was asked about newspaper valuations and Singleton quipped, “Well that all depends, doesn’t it Gary, on whether you are the buyer or the seller!” Laughter all the way around, but the words were said in dead earnest.

Not long afterwards, Singleton agreed to buy the San Jose Mercury-News, the Contra Costa Times, the Monterey County Herald, and the St. Paul Pioneer Press – the latter two in a complicated equity swap that saw Hearst take a small minority piece of MediaNews. Agreed price was $1 billion cash, a multiple of 11.5 times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) whereas McClatchy paid about 9.5 times EBITDA for all of Knight-Ridder and it is thought that for those particular four papers McClatchy had paid about 8 times EBIDTA. So either Singleton paid a hefty premium for those properties, or McClatchy got a great deal from Knight-Ridder.

When word got out that 'Lean Dean' had made the deal staff at those newspapers quaked in their shoes. Singleton’s cost-cutting reputation preceded him, surely there were now going to be layoffs galore, but Singleton visited each newspaper and his message was oh so positive. Visiting the Mercury-News, where margin was thought to be around 12%, he said there would be no layoffs, no pay cuts or reductions in health benefits.

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And in a visit to the St. Paul Pioneer Press he answered staff questions that specifically delved into his business philosophy -- important in St. Paul since the newspaper had only about a 10% profit margin – well below the industry’s average 20%.

"Margin is something that our company has never paid attention to, because you don't pay your bills with margin, you pay them with dollars. And as long as we can create a growing business with a growing profit, the margin is not really that important," Singleton told staff who said they were relieved to hear that.. But just to make sure there was no misunderstanding there was a kicker -- "We make sure our newspapers live within their means. And we make sure they're viable businesses. And sometimes that means that you've got to be very efficient. I'm not ashamed of that," he warned.

And staff should have heeded that warning. Within the first year at the Mercury-News staffing is down by 22%. And how good an editorial product does it put out now? The AJR article asked Tony Ridder, the Knight-Ridder CEO who was forced to sell the company by institutional shareholders, and he said he still reads the Mercury-News every morning, but as the article says, “With a mounting sense of disappointment and sadness.”

Singleton wanted the Mercury News and the Contra Costa Times because they and 10 smaller dailies he already owned gave him a near stranglehold on the San Francisco Bay Area, except for the San Francisco Chronicle. Perhaps achieving that dream meant he was willing to pay whatever Pruitt wanted, and maybe Pruitt understood that.

Since the Knight-Ridder purchase Singleton has been busy slashing costs at all of his Bay Area newspapers, combining most back office functions now at one site and editorial is now on a system whereby one newspaper will cover an event for all the newspapers so there is no reporting assignment duplication. The cuts were successful enough to be adopted elsewhere within the company – just last week, for instance, the News-Times of Danbury, Connecticut, consolidated three departments -- circulation, classified advertising, and payroll -- with its sister newspaper, the Connecticut Post, based in Bridgeport. Both are owned by Media News and 13 jobs were eliminated.

Singleton believes the advertising downturn of past years is still cyclical and that while the worst is not over for print newspapers long term they will be all right. The job now is to last through the storm.

Not helping pay off the mounting debt is that Media News also has substantial losses in its Salt Lake City and its Denver operations. Standard & Poors has placed the company on credit watch with a downgrade probable if the company’s decline in EBITDA continues because of lower advertising revenue in most of its markets.

“Although Media News has been pursuing cost efficiency measures for some time and expects to achieve additional cost savings in future periods, revenue declines have outpaced cost cuts during the past few quarters,” according to S&P analyst Emile Courney. MediaNews has a corporate credit rating of BB-minus, meaning it "faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions.”

S&P noted that MediaNews is "pursuing amendments to financial covenants for the current period in its secured credit facility that we expect the company to achieve over the near term."

Did you catch in the S&P report that revenue declines have outpaced cost cutting savings? If ever there was a a red flag in front of the Dean Singleton bull, that surely must be it!