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A rough three years for newspaper stocks

Alan Mutter, a media industry investment guru based in Silicon Valley, has published some stunning numbers at his blog Newsosaur on the decline in value of publicly traded newspaper companies.

The market value of the American newspaper publishers entering 2008 as independent, publicly traded companies has fallen by $23 billion, or 42 percent, since the end of 2004, Mutter reports.

Nearly half of the slide in the market capitalization of newspaper stocks came in 2007, when the shares lost a collective $11 billion, or 26 percent, of their value. Thus, newspapers lost nearly as much value last year as they did in the two prior years put together.

McClatchy among biggest losers
McClatchy was the third-biggest loser on the list, having lost 82 percent of its value, ending up at $1.03 billion, Mutter reported.

(That means the entire company, which owns 31 dailies, is worth less than McClatchy paid for just the Star Tribune in 1998. Full disclosure: I was the publisher of the Star Tribune at the time of that sale in 1998. I no longer own any McClatchy stock.)

The decline of newspaper stocks compares with respective increases in the last three years of 17 percent and 15.6 percent in the Standard & Poor’s average of 500 stocks and the Dow Jones average of 30 industrials.

The Star Tribune and Pioneer Press both used to be part of publicly traded companies — McClatchy and Knight Ridder, respectively. Now both are owned by private companies, so it’s difficult to say what the decline in the value of public newspaper companies implies about their value.

By email, I asked Mutter to make an educated guess for MinnPost readers about the value today of the Star Tribune, which McClatchy sold last year to Avista for $531 million, and the value today of the four newspapers, including the St. Paul Pioneer Press, that Dean Singleton’s MediaNews purchased in 2006 from McClatchy for $1 billion.

First, re: the Pioneer Press, Mutter responds, “It probably is safe to estimate that PiPress today is worth 40 percent to 60 percent of what MediaNews Group paid in the summer of 2006, assuming you could find a buyer for a free-standing, heavily unionized paper in a competitive market.” Mutter said this estimate is based on the reduced multiple of earnings that newspapers are valued at today, compared with 2006; the value today could be even lower if the earnings themselves have declined, which he said is likely.

Re: the Star Tribune, Mutter guessed it might be worth “10 to 25 percent less than what Avista paid for it.” This is based on two main factors:

1. Reports that Avista paid 6.5 times cash flow profit in December 2006, and McClatchy today is trading at 5.9 times cash flow, which is 8.7 percent less.

2. Mutter’s assessment that “a free-standing, heavily unionized metro in a weak ad market would not be worth as much as McClatchy’s diversified holdings in predominantly growing, single-newspaper markets” — i.e., the Star Tribune’s multiple should be less than 5.9 today. Mutter thought it might be closer to 5.0, which would be 23 percent less than in December 2006.

Once again, Mutter said his estimate assumed no change in earnings. If the earnings have declined — i.e., if cost cuts have not matched revenue declines — the Star Tribune would be worth less, he said.

Estimates for private companies rough
Mutter emphasized that these are very rough estimates. In the end, of course, a company is worth what someone is willing to pay for it — no more, no less.

That, by the way, explains why Dow Jones, the owner of the Wall Street Journal, was the big winner of the era; it climbed 65 percent in value as the result of the high price Rupert Murdoch’s News Corp. paid to buy it from the Bancroft family, which had a controlling share.

The only other public newspaper company to rise in value during this period, Mutter reported, was the Washington Post Co. Its shares, Mutter reported, “gained 4 percent in value in the last three years, thanks to aggressive diversification out of the newspaper business and into such lucrative endeavors as its Kaplan test-prep schools.” In other words, the best way to create shareholder value in the newspaper business in recent years has been to invest the profits from newspapers in something else.

Joel Kramer is editor and CEO of MinnPost.

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