Who Knew? Newspapers Are a Hot Commodity   

The high sale price of papers shows sophisticated investors believe in their future.

All those who labor in the newspaper world and are worried about the future because of budget squeezes, layoffs and sundry other indignities associated with downsizing can take heart from one fact: Newspapers are more valuable than ever.

This is scant solace to someone already laid off, but at least the rising worth of newspapers as businesses is solid evidence that they will be around for a long time.

Buying a newspaper, after all, is a bet on the future. The dollar value of the bets made in recent months shows strong confidence in the future of newspapering, despite whatever threats to revenues and readership may be lurking in cyberspace.

Thus I was not surprised when the Milwaukee Journal Sentinel recently received an unsolicited offer of $1 billion for the newspaper and its associated broadcast properties (see "Merged in Milwaukee," page 26). The offer was rejected by the company's management, and it remains to be seen whether the unidentified suitor, represented by a small New York investment firm, will succeed in pitching the sale directly to employee shareholders, who own 90 percent of the stock.

Other deals, though, have gone through in recent months. Late last year Gannett paid over $2 billion to acquire Multimedia, owner of 11 dailies and numerous weeklies as well as broadcast stations, cable systems and entertainment companies.

Media General, parent company of newspapers in Richmond, Tampa and elsewhere, last fall paid $230 million to acquire four small dailies in Virginia owned by the Worrell family. Also last year, Knight-Ridder paid $360 million to acquire four dailies and numerous weeklies from the Lesher family in Northern California, and McClatchy Newspapers, owner of dailies in Sacramento, Fresno, Tacoma and several other cities, paid $374 million to acquire Raleigh's News & Observer.

To understand why these deals represent an increase in the relative worth of newspapers, it is necessary to delve into the arcane world of "multiples." Sale prices of newspapers are compared by calculating how many times a particular factor can be divided into the price. For example, the sale price of the News & Observer was 3.5 times higher than the newspaper's annual revenue. In other words, McClatchy paid a multiple of 3.5 times revenue.

Another way to measure a transaction is by dividing the sale price by the newspaper's average daily circulation (the sum of all the newspapers delivered in a week divided by seven). The Raleigh price was 2,306 times its average circulation. This last multiple usually is expressed in dollars: The $374 million price for Raleigh represents $2,306 per subscriber (the term subscriber is used even though some of the circulation comes from newsstand sales).

Another multiple commonly referred to involves operating cash flow (earnings before noncash charges like depreciation of all assets as stated on the balance sheet and all liabilities).

For this discussion we will ignore all but the subscriber multiple because frequently that is the only one that can be figured out. Revenue, cash flow and other financial data often are not made public.

The subscriber multiples that have been achieved in some deals over the last year or so are as high as those common during the media-buying frenzy of the late 1980s. The Worrell papers that Media General bought last year, for example, had a subscriber multiple of $2,839. Knight-Ridder paid $1,868 per subscriber for the Lesher papers – lower than the others already mentioned because the Lesher papers operate in the highly competitive San Francisco Bay market. Competition always lowers price. The Chicago Sun-Times, for example, battling the dominant Chicago Tribune, commanded only $352 per subscriber when it was sold in 1994.

A subscriber multiple is not meaningful for Gannett's Multimedia deal because so many non-newspaper properties were included. Similarly, the bid for the Milwaukee Journal Sentinel is colored by that company's ownership of several broadcast properties. Just considering the newspaper's circulation, the bid equals $3,023 per subscriber, and it is safe to say that if the broadcast properties were out of the equation, the newspaper alone probably would be valued at considerably more than $2,000 per subscriber.

Prices this high have not been seen since the 1980s. With the onset of the advertising recession in 1990, relative prices of newspapers fell (as did the number of acquisitions), with subscriber multiples in the $1,200 to $1,600 range common.

Again, the rise in values is of little comfort to those downsized out of the business. But those who remain can take some comfort in knowing that sophisticated investors have confidence in the future of newspapers. l