From AJR,   February/March 2005

Another one bites the dust?   

The possible sale of Pulitzer´┐Żs newspapers puts a former newsman in a nostalgic mood.

By John Morton
John Morton (mortoninc@msn.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.     

Correction appended

I've always supposed that I was drawn to journalism as a young man because I grew up in a part of the country that had some pretty good newspapers. The most important of these was my hometown daily in Kansas, the Hutchinson News Herald, whose name, in a sad rejection of tradition, has since been truncated to the Hutchinson News.

The News was always fiercely independent and aggressive in its coverage in a conservative state that didn't much appreciate such journalism (the News won a Pulitzer for public service in 1965), to the point that Bob Dole once dubbed the News the "Prairie Pravda." Other quality dailies in the Midwest included the Kansas City Star, the Des Moines Register, the Minneapolis Star (since renamed the Star Tribune) and the Milwaukee Journal (now the Journal Sentinel).

Probably standing above all of them in reputation and tradition was the St. Louis Post-Dispatch, founded by the original Joseph Pulitzer in 1878. So it is with some trepidation that I ponder what might happen to the Post-Dispatch now that the Pulitzer family has decided to put it and Pulitzer's 13 other dailies up for sale. Now, because of magazine deadlines, I am at some risk of being overtaken by events. The Pulitzers have not come right out and said the company is for sale, only that the company is "exploring a range of strategic alternatives" that might include a sale. In my experience, though, 99 times out of 100 that means a sale.

Once an investment banker is hired, in this case Goldman Sachs & Co., the banker has an inherent tendency to push for a result that will benefit it the most financially--a sale. And it could be that the family has already decided to sell and merely hired an investment banker to handle the details.

Which company winds up owning Pulitzer may depend on what Goldman Sachs has been asked to do. If the family has already decided on a preferred suitor, the banker would hammer out the details of a deal. In that scenario, there are companies that would be culturally compatible with the Pulitzer family's history of good journalism and generally liberal editorial-page stances, including Cox Enterprises, the McClatchy Co. and the New York Times Co.

If instead the banker's role is to conduct an auction, almost any of the large newspaper companies could emerge as the new owner. Inevitably, an auction brings to the fore the element of fiduciary responsibility to shareholders, which in effect means the highest bidder gets the prize regardless of cultural compatibility. Fiduciary responsibility exists in a negotiated sale to a preferred suitor as well, but there the investment banker presents compelling evidence that the proposed sale price is full and proper.

A.S. Abell Co., then the owner of the Sun newspapers in Baltimore and other properties, faced this quandary in 1986. The controlling family was determined, for compatibility reasons, that Times Mirror would wind up owning the company. Thus the family quietly and quickly completed the transaction before any other company could jump in. (Disclosure: I was an adviser to A.S. Abell in the deal.)

If there is an auction, speculation in news accounts has focused on Gannett as a likely bidder and possible winner. Gannett, though, would face a complication in that it and Pulitzer are 50-50 owners of the joint operating agency in Tucson that publishes Gannett's Tucson Citizen and Pulitzer's Arizona Daily Star. The U.S. Justice Department's antitrust division has never favored the creation of joint agencies and has been especially sensitive about an agency devolving into a monopoly for one company. Still, Gannett conceivably could convince Justice that its own Tucson Citizen, with less than a quarter of the Daily Star's weekday circulation and no Sunday edition, is such a drag on the agency's profitability that the agency should be dissolved.

Why would the Pulitzer family sell out? Probably for the same reasons that motivated the Chandler family to sell its Times Mirror to Tribune Co. and the Pulliam family to sell its Central Newspapers to Gannett. Newspaper values are as high now as they have ever been, but with the Internet looming and other concerns about newspapers' future prevalent, there is no certainty that today's high values will exist in five or 10 years. The future has unknown risk. The present is worth a lot of money.

Of the dailies of my youth, the Hutchinson News is still owned by the Harris family. (Employees also own a sizable chunk.) The Milwaukee Journal Sentinel is still controlled by its employees, although the company has become a publicly traded conglomerate. After three ownership changes, the Kansas City Star is now part of Knight Ridder. The Cowles family sold Minneapolis' Star Tribune to the McClatchy Co., and another branch of the family sold the Des Moines Register to Gannett. And now the venerable Pulitzer name is likely to disappear from the ranks of newspaper ownership.

Correction: In the original version of this story, AJR misspelled A.S. Abell Co.