Last summer, Courtside Acquisitions Corp. acquired American Community Newspapers, best known for publishing the local Sun suburban community newspapers. At the time, the company’s stock publicly traded at $5.63 a share.

Today? Sixteen cents.

That means ACN, purchased a year ago for $165 million, now has a market value of $2.3 million. No doubt a bargain price, considering first-quarter operating cash flow of $3.3 million. But wait — you have to assume ACN’s debt ... all $136 million of it.

In public statements, ACN says it “expects” to violate credit agreements and is “in discussions” with bankers to modify terms.

In other words, the Strib’s Avista Capital Partners isn’t the only local-media owner to leverage up and get horribly burned.

Although ACN has clusters in Texas, Ohio and Virginia, the company singles out its 44 Minnesota papers as the chain’s anvil. That $3.3 million cash flow? It was down 11 percent from a year earlier. Without the Minnesota papers, it would’ve risen 12 percent, the company disclosed.

Investor Doug Beaney — who bought ACN low, seeing little risk — says a rebound doesn’t seem imminent: “One obvious huge sign is that their chief financial officer walked away from a lot of stock options [this year] that were priced not unreasonably.”
 
So could a chain serving 457,000 metro readers go under? Or sell off weak Minnesota papers to raise cash? Company officials were not made available to discuss finances, but via e-mail, a spokesman stated, “As a matter of corporate policy, we don’t comment on rumor or speculation.”

Real estate blamed
Just 12 months ago, it all looked so good. New York-based Courtside — which bought ACN and took its name — bragged that, “These markets are some of the most affluent, high growth markets in the United States, with ACN strategically positioned in the wealthiest counties within each market.”

So what happened? The company blames the housing bust.

During the past decade, community papers grew especially fat on Realtor, builder and remodeler ads. Today, Bob Cole, ACN’s new Minnesota publisher, notes the Twin Cities foreclosure rate is among the nation’s Top 10 (and presumably higher than other ACN markets). That’s just a bellweather for the broader building/fixup slump that’s punishing anyone housing-dependent.

Another locally specific factor: the troubled Star Tribune.

The major daily has loudly proclaimed its “local, local, local” strategy, offering readers zoned editions of narrow-bore news and school sports. But the move is at least as much about advertising: replacing fleeing or enfeebled big advertisers with smaller ones.

A falling tide helps sink all boats. ACN’s Cole says the Strib is pushing “a lot more aggressive pricing than I’ve seen in 19 years. … In some cases, we’ve seen rate cuts of 50, 75 percent, as they’re trying to establish a stronger relationship with locally based businesses.”

Jeff Athmann, chief operating officer of ECM Publishers, another local community-paper player, concurs. “We’re seeing significant ad-rate reductions being offered by the Star Tribune.”

ACN’s market nightmare is amplified by investors’ surging hatred of newspaper stocks amid Internet shifts and persistent economic weakness.

The tortoise and the hare
Then, of course, there’s the debt.

ECM’s Athmann insists ACN is not a competitor; they overlap only in a few south-metro markets. ACN has more papers; many closer to the central cities. (See below.)

Still, it’s not hard to see a tortoise and a hare.

ECM, founded by ex-Gov. Elmer L. Andersen, has always been private, and debt-averse. Meanwhile, ACN has pinwheeled through several incarnations under Chairman/CEO/President Gene Carr’s tenure.

ACN’s buyer, Courtside, was a so-called “blank check company” — raising money without knowing what it would be spent on. Courtside promised to dissolve if it didn’t make a deal by July 2007. Although discussions began in October 2006, Courtside bought the then-private ACN with five days to spare.

Beaney says the money boys like community papers. “They have great cash flows because of the low-cost nature of the business.”

Staffs aren’t big — locally, ACN’s four managing editors direct 25 reporters, four photographers and three sportswriters servicing 44 papers. Sixty-five percent of the content is ads, Cole says. And — at least until recently — the papers have been so niche as to be insulated from bigger competitors and the web.

ECM’s Athmann says he was regularly outbid when papers came up for sale in the last several years. He wouldn’t pay more than six times a publication’s annual earnings. When Courtside acquired ACN, the multiple was 11.

ACN leveraged up faster than ECM — and now sales appear to be falling faster, too. An ACN staffer who asked for job-protecting anonymity says ad revenue has declined 17 percent this year.

Officially, Cole says “We don’t break out markets.” However, ACN reported a companywide 12.1 percent decline in the first quarter; with Minnesota an acknowledged laggard, 17 percent sounds in the ballpark.

At ECM, the metro drop is in the high single digits, Athmann says.

What’s it mean for content?
How has ACN’s fiscal meltdown affected the Sun papers’ journalism?

In recent months, not much. Cole says the budget he received in late March hasn’t been cut, and there have been no layoffs then.

In fact, he’ll soon add two positions to expand online coverage. ACN just redid its Sun-branded website, and Cole promises new revenue-generating ad products, even if the big payoff is down the road.

Page counts haven’t fallen, though page sizes are about 4 percent smaller.

Still, current and former staffers say they’re struggling with cost-cutting that predates Cole.

Since last year, the paper has laid off a managing editor (there were five), a staff photographer and a sports reporter. The unnamed employee says some Sun papers now have a hard time covering private-school sports — a lower priority than community-school contests, but still a vital draw for readers looking to see their uniformed kid’s mug.

Meanwhile — stop me if you’ve heard this one — freelance reporters are being asked to shoot more photos and videos, while continuing to fill the paper.

“The morale wasn’t as good as it once was,” says Steve Pease, a Richfield Sun Current reporter who left earlier this year to work for Minneapolis’s Southwest Journal.

Pease said he hadn’t ruled out working for ACN long-term, but decided it was a good time to seek another job “after they said no wage increases indefinitely, and taking a look at the stock price.”

As at other cash-strapped outfits, good journalism still springs from between the fiscal cracks. ACN just took home 10 Minnesota Newspaper Association awards (though no first places for its metro-area papers) and is proud of a multi-paper education project. (PDF) There are still some seasoned vets, and always-willing newcomers like Pease.

“With one job under my belt after school, I was treated fair, I got lots of good skills and tutelage,” he says. “They’re good little chain papers, even if they’re not doing as well as they’ve done.”

ACN’s hope — aside from debt relief, assuming bankers don’t want to run Sun Sailors — is that community paper economics will prove more resilient than the dailies'.

Says Cole, “I’ve been in this 28 years; I’ve survived the perils of the 1980s, when real estate was in the tank, S&Ls closing, when [direct mailer] ADVO entered the market and was stealing community ads. We’ll come up with new tools, new products to survive.”

(Note: ECM is a MinnPost partner; we link to thisweeklive.com, the chain’s Dakota County news service.)

American Community Newspapers

Apple Valley/Rosemount Sun Current
Bloomington Sun Current
Brooklyn Center Sun Post
Brooklyn Park Sun Post
Burnsville/Savage Sun Current
Eagan Sun Current
East Minnetonka Sun Sailor
Eden Prairie Sun Current
Edina Sun Current
Excelsior/Shorewood/Chanhassen Sun Sailor
Blaine/Spring Lake Park Sun Focus
Fridley/Columbia Heights Sun Focus
New Brighton/Mounds View Sun Focus
Roseville/Falcon Heights Sun Focus
New Hope/Golden Valley Sun Sailor
Plymouth East Sun Sailor
Plymouth West Sun Sailor
Richfield Sun Current
Robbinsdale/Crystal Sun Post
Hopkins Sun Sailor
Lakeville Sun Current
South St. Paul/Inver Grove Heights Sun Current
St. Louis Park Sun Sailor
Wayzata/Orono/Long Lake Sun Sailor
West Minnetonka/Deephaven Sun Sailor
West Saint Paul/Mendota Heights Sun Current
Stillwater Evening Gazette
The Valley Life
Champlin/Dayton Sun Press
Delano Eagle Sun Press
North Crow River Sun Press
Osseo/Maple Grove Sun Press
Rockford Area News Sun Press
South Crow River Sun Press
Stearns Morrison Enterprise
Melrose Beacon
Carver County News
Gold Miner (Waconia)
Norwood Young America Times
The Laker (Mound)
The Pioneer
Waconia Patriot
Monticello Times
Monticello Shopper

ECM Publishers, Inc.

Anoka County Shopper
Anoka County Union
Blaine-Spring Lake Park Life
Caledonia Argus
Coon Rapids Herald
Dairyland Peach
Dakota County Tribune
ECM Post Review (North Branch area)
Isanti County News
Mille Lacs County Times
Morrison County Record
Princeton Union-Eagle
Scotsman (Cambridge)
Star News (Elk River area)
St. Croix Valley Peach
ThisweekLive (Dakota County)
Town & Country Shopper (Princeton area)