[Note: correction appended]
Rejoice! Local ownership is coming to the Star Tribune. Local publishing magnate Vance Opperman and Timberwolves’ Glen Taylor want to be Star Tribune minority owners, according to the Strib’s David Phelps.
Their bid — reported to be $6.25 million to $8.75 million — amounts to little more than a tip for both, especially Taylor, but will garner gratitude and awesome publicity, especially since the two talk of being long-term owners. Two things jump out:
1. The discount non-controlling shareholders receive for not having control. Phelps says the duo’s cash will buy 25 to 33 percent of the company, but amounts to only 5-7 percent of the reported $125 million equity.
[Correction: Opperman and Taylor value the Strib at $125 million, but if you take out the $100 million in debt, the equity would be $25 million. So $6.25 million is 25 percent of the estimated equity, and $8.75 million is 33 percent of it. No discount, in other words. By the way, during bankruptcy, the Strib estimated its equity at $18 million to $44 million.]
Phelps notes Taylor and Opperman, who will probably get board seats, might “obtain additional shares at a later date” — and if it’s a controlling share, that’s the big news.
2. It’s still probably better to hold the Strib’s loans ($100 million) than own equity. The deal really won’t put much cash in the pockets of private equity owners Wayzata Investment Partners, Angelo Gordon & Co., Credit Suisse, CIT Bank and GE Capital. However, those entities also hold the Strib’s debt, or at least did at bankruptcy emergence last month. They still stand to get $9-$10 million in interest annually, or they’ve sold the debt, perhaps for more cash than this bid provides.
I’m kicking myself a little bit because I’d received tips earlier this summer that the duo’s lawyer, Steve Pflaum, was talking to the principals while the paper was still in bankruptcy. Pflaum ducked me, and I could never figure out who his clients were. But this deal has been in the works for awhile.
So what could the impact be? Opperman is a major DFL donor; Taylor, the same for the GOP. (More details here.) Both are hard-nosed businessmen: Ask any of Opperman’s non-union and not-necessarily well-paid Mpls.St.Paul magazine employees forced to sign non-competes.
Opperman acquired MSP and Twin Cities Business Monthly in 1996, and later picked up Minnesota Law & Politics. I’ve enjoyed writing for two of them, but while they’ve been successful, none are known as hard-hitting news operations. The business-friendly TCBM, in fact, destroyed one of the great local business magazines of all time, Corporate Report Minnesota (for which I also wrote), by marketing itself as less adversarial. Opperman writes a column for TCBM.
MSP is suffering from the same ad meltdown as the Strib, though the company picked up a nice client recently in Delta’s Sky Magazine. There is no doubt Opperman, a West Publishing scion, knows the business, its challenges and how to run a tight ship. He’s not just whistling Dixie when he tells Phelps the Strib “has to be a profit-making entity.”
As Wolves fans know well, Taylor is a long-term investor, sometimes to a fault. (See: McHale, Kevin.) He’s a billionaire, though, and brings his own proven business savvy. Both men have connections throughout Minnesota, which probably won’t save the paper but can’t hurt.
Local ownership has its advantages, but Strib reporters are going to be bumping up against their overlords’ companies a lot more if the deal comes to pass.
More later today.
“Phelps says the duo’s cash will buy 25 to 33 percent of the company, but amounts to only 5-7 percent of the reported $125 million equity.”
Maybe the equity isn’t anything at all like what’s being reported. Equity is worth what someone is willing to pay for it, and the Opperman offer is just bringing home the extremely grim reality.
“It’s still probably better to hold the Strib’s loans ($100 million) than its equity.”
In bankruptcy, which the Star Tribune will never be far from, creditors get paid ahead of shareholders. When a company is in distress, in practical terms, debt takes on many of the incidents of ownership, because the equity effectively disappears. If the Opperman Taylor group are interested in obtaining a longer term interest in the Strib, they might be better advised to buy the debt, rather than speculate on purchasing the equity, which might soon disappear.
I notice also that according to the original Strib story, that Vance is offering something that is valued at $6.25 million to $8.75 million which at least suggests to me that he isn’t offering cash.
It should also be noted that both Opperman and Taylor became billionaires through monopolistic business practices: Opperman with West Publishing (which virtually held the copyright on US law books) and Taylor, who acquired most of the specialty (wedding invitation) printers in the upper Midwest.
It’s hard to believe that two highly successful monopolists will do much to increase the quality of news we’re getting.