By Mick Gregory
We are observing the death throws of a star on its way to becoming a white dwarf. Gasses spewing, used matter is shredded and thrown out. The size of the once bright, powerful force rapidly shrinks as it collapses on itself. These are the telltale signs of a dying star.
The Star Tribune, once among the Midwest’s largest newspapers, was purchased by the Sacramento-based McClatchy media company in 1998. The “executive editors” paid $1.2 billion for it from a family who wanted out of the business.
In less than 10 years, the rapid growth of Google, Drudgereport, Craigslist, E-Bay, FaceBook and WordPress lured away much of the newspaper audience and built new readers/users that were not newspaper-friendly. So the advertising found new rising stars.
Last year, Avista, a New York-based private equity group, purchased the dying Star Tribune for less than half of what McClatchy paid only eight years earlier.
Since Avista’s purchase, the star has been shedding reporters, editors, photographers, advertising sales staff and designers through two rounds of buyouts and the elimination of open positions. That was just a show for creditors.
Now, in January of 2008, the Star-Tribune filed for Chapter 11 bankruptcy.
The Star Tribune’s long-term business slump has continued, with revenue declining by about 25 percent, from $400 million in 2000 to $300 million last year, according to a Star Tribune story in July. While major expenses such as newsprint and transportation increased. Even those adult newspaper carriers throwning papers out of the window of their pickups, need to be paid.
Several weeks ago, Avista announced that it was writing down the value of its $100 million equity investment in the Star Tribune to $25 million. That’s $75 million wiped out in one year. The Star shed more than $1.15 billion in value over nine years. The new owners are getting pennies on the dollar trying to restructure their debt.
The only candidates for buying into debt-ridden newspapers now are hedge funds, especially those that make a specialty of distressed debt investments, according to several industry observers. It’s called a loan-to-own strategy, they calculate that the owners like Avista will default on their new loans and the fund becomes the new owner for pennies on the dollar. What’s left may be some downtown real estate and a false store-front Web site. This is the white dwarf stage. And there are hundreds more flickering, spewing gas and spitting out used up matter.