I’m maybe a little late to notice this (I’ll hide behind the excuse of my daughter’s wedding), but it’s interesting to see that in just eight years, the Minneapolis Star Tribune has lost half its value, as the paper reported December 27:
The McClatchy Co. capped a year of dramatic changes in the newspaper industry Tuesday by announcing the surprise sale of the Star Tribune, its largest newspaper, to a private investment group.
The $530 million sale will place the future of Minnesota’s dominant newspaper in the hands of Avista Capital Partners, a New York-based partnership of former investment bankers. It also continues a trend that accelerated this year in which large newspaper companies, such as McClatchy, Knight Ridder and Tribune, either winnowed their holdings or put themselves up for sale. Private owners have emerged to bid for many of the big-city papers that have come into play as a result.
McClatchy paid $1.2 billion for the newspaper in 1998. Although its circulation and advertising results in the past several years had run into the same headwinds that other large dailies have encountered, the Star Tribune remains solidly profitable.
McClatchy, in explaining its decision, said the Star Tribune had been underperforming in recent years.
“The Star Tribune did very well for a few years, but recently it has lagged in performance,” McClatchy CEO Gary Pruitt said. “Large metro papers have underperformed smaller ones because they’ve been more dependent on classified ads, which have been most affected by the Internet. The Star Tribune suffered from that.”
While the sale price is far less than McClatchy paid in 1998, the company will also realize $160 million in tax benefits as a result, making the total benefit to McClatchy closer to $700 million.
If anyone doubts that the mainstream media are facing significant economic problems, this is further evidence that is consistent with my posts about circulation and audience declines and layoffs here and here.
Some have suggested that the interesting trend is private firms taking these large public media companies private…that the quarterly earnings focus of publicly traded companies doesn’t let them make the investments they need to transform themselves and flourish in the world of new media. See, for example, Clear Channel being taken private.
That’s an interesting idea, but this recent sale of the Star Tribune gives a rare barometer of the overall health of the old media. Going from a value of $1.2 billion to $530 million in just eight years is a 56 percent loss. Now, some would say that’s not taking into account the tax savings McClatchy gets for selling at a loss…which brings the value to McClatchy of the transaction to $700 million. That brings the loss to “only” 42 percent.
I believe McClatchy is a good capitalist company seeking to maximize value for shareholders, and would have sold to other firms if they had offered more than $530 million. Maybe with the end of the year approaching, McClatchy was a motivated seller, and in the urge to consummate the deal didn’t drive as hard a bargain with Avista as it would have otherwise.
Maybe McClatchy could have gotten a better price if it had advertised the paper for sale on Craig’s List.
As the story says, the Star Tribune does have the dominant position among newspapers in a top-15 market, and I have no reason to doubt that it remains profitable.
But apparently it’s about half as profitable as it was in 1998.
“I’m here today because my partners at Avista and I believe unequivocally that the Star Tribune is one of the great newspapers in the country and that the Twin Cities is one of the great markets,” said Chris Harte, a member of Avista’s executive advisory board and a former Knight Ridder publisher, who will act as chairman of the board of directors at the Star Tribune.
If a profitable, “great” newspaper in a “great” market is dropping this quickly in value, what’s the outlook for papers elsewhere?