By Mick Gregory
Read between the lines, top financial adviser, Goldman Sachs, (who’s CEO received a $50 million bonus this year) says dump your newspaper stocks.
At the same time, media mogul David Geffen’s $2 billion bid for the Los Angeles Times is about $1 billion short of what big shareholders of parent Tribune Co. want for the mega newspaper, sources close to the company said.
Tribune shareholders, but more importantly, the Chandler family, believe the value of the L.A. Times is closer to $3 billion and have said any sale of the paper would have to be done as a tax-free transaction, sources said.
A private equity group made up of Madison Dearborn Partners, Apollo Management and Providence Equity Partners has met with Tribune’s management and Chandler relatives and are conducting serious negotiations. Merrill Lynch and Citigroup are running the auction process, which has been pushed into next year after the company got lower-than-expected initial bids.
Another option for Tribune’s board, which is being advised by Morgan Stanley, is to spin off the broadcast unit and the newspaper unit into two separate public companies.
“We do not believe spinning-off Tribune’s TV assets would create value for shareholders, however, as it is just separating to secularly declining businesses,” said Lehman Brothers analyst Craig Huber in a recent report.
Some shareholders, including the Chandler family, fear that the board will eventually call off the auction and the stock will go into free-fall.
The Chandler Family, Merrill Lynch and Citigroup had better find some suckers soon.
As the year comes to a close, it will prove to be the first time industry results have not been up to snuff during a healthy economy. In a report issued by Goldman Sachs on Wednesday, analyst Peter Appert and his team wrote, “2006 will likely end as the first non-recession year in newspaper industry history in which revenues declined.”
Goldman predicts that total revenue will sink 0.3% due to weak classified, national, and circulation revenue. If so, it will turn out to be the industry’s worst performance “since the recession-impacted results of 2001,” wrote analysts.
Tribune’s September announcement that it’s seeking strategic alternatives has whipped the market into frenzy. The newspaper sector is up 8.4% compared to an 8.3% gain in the S&P500. Year-to-date the group is down 0.7%. In 2005 it was down 20.5% and in 2004 it dropped 6.1%. The large-cap papers are the ones really benefiting: that group is up 3.7% year-to-date while small-cap papers are down 21.7%.
Should stockholders be encouraged by the rally? Don’t buy into the hype, Goldman warns.
“We continue to advise investors to sell into this recent strength based on our view that deteriorating fundamentals will trump restructuring speculation,” analysts wrote. “While we believe money can be made in ‘special situations,'” — E.W. Scripps and GateHouse Media are rated as “buys” –“we would remain underweight on the group.”
Back to advertising, the crumbling of classified is going to hurt the industry even more. Goldman estimates that in Q4, classified revenue will decline 3.4%. For the full year, it’s expected to dip 0.7%. In 2005 classified revenue grew 4.2%.
Jennifer Saba wrote in Editor & Publisher
Imagine the “carbon credits” newspapers will have to pay once the Democrat Progressives take full control of the government. All those trees, and the thousands of “crack head” adult carriers driving around in their pickups add up to a big bill to pay the political party they have supported for the past 30 years.