A Blog by Jonathan Low


Apr 27, 2016

Why No One Knows What A Newspaper Is Worth Anymore

'Never pick a fight with anyone who buys ink by the barrel,' intoned Mark Twain back when ink, paper and even human reporters as well as other tangible sources of value could determine economic, political and social fate.

But a couple of decades after accountants and financiers struggled to assess how to measure the growing value of intangible internet assets and their financial impact, it is now the traditional tangible assets whose value can no longer be appraised with any certainty.

In an age of overwhelming digital dominance, print media, property, plant and equipment and similar traditional sources of wealth have paled, decimating their worth, to the extent that it can even be accurately estimated.

The fact that three major, influential newspapers like the Washington Post, Financial Times and Chicago Tribune - for which an offer was made yesterday - have been bid for over the past few years for such wildly disparate prices suggests, as the following article explains, that notions of value are now more dependent on digital audiences, advertisers and their resultant revenue streams. So we now have a firmer indication - as if one were really needed - that our notions of value and how we arrive at them, must change as well. JL
Noah Kulwin reports in Re/code:

Three years ago, Jeff Bezos paid $250 million for the Washington Post. Last year, Nikkei paid $1.3 billion to take the Financial Times.Today’s $815 million bid to buy Tribune Publishing falls in the middle of those deals. It suggests that as print revenue continues to decline, there’s no such thing as a market price for newspapers anymore.
Three years ago, Jeff Bezos paid $250 million for the Washington Post from the Graham family. Last year, Japanese publisher Nikkei paid $1.3 billion to take the Financial Times off the hands of the education conglomerate Pearson.
Today’s $815 million bid to buy Tribune Publishing, from USA Today owner and newspaper chain Gannett, basically falls in the middle of those two recent deals. And it suggests that as print revenue continues to decline, there’s no such thing as a market price for newspapers anymore.
Gannett is offering $12.25 a share (5.6 times Ebitda*), or a 63 percent premium on the current value of its stock, to buy the struggling newspaper publisher, which owns eleven dailies, including the Chicago Tribune and crown jewel Los Angeles Times. In 2013, Bezos paid what analyst Ken Doctor called a “friendship premium” of 17 times Ebitda; when Nikkei bought the FT, the going rate for European newspapers was 12 times Ebitda. Nikkei paid 35 times Ebitda.
And here are some more startling deal (or near-deal) numbers to look at:
Tribune Publishing’s most prized asset, the Los Angeles Times, has long been chased by big names like Rupert Murdoch and, more recently, LA-based billionaire philanthropist Eli Broad. In November, Murdoch tweeted (incorrectly) that there was an imminent sale of the paper to Broad.
Tribune’s stock has sunk sharply in the last couple years, and its former CEO was replaced by activist investor Justin Dearborn. Though the calls for Tribune to sell the Times to Broad were pretty loud last year, it never really made a lot of sense for the company to part with the best thing it owns.
Another thing that makes this deal interesting is whether the federal government will get involved. Tribune Publishing recently attempted to take over the Orange County Register but was waved off by the Department of Justice over antitrust concerns.
As far as newspaper stocks go, Gannett has done pretty well since getting spun off from its TV broadcasting unit in June of last year. Things haven’t gone as well for Tribune Publishing after splitting from its TV division, Tribune Media, in August 2014. The company’s stock has fallen from around $25 a share to just over $7 a share since then.
Update: This isn’t a friendly offer, meaning Tribune might not play ball, but investors sure seem to dig it. Tribune Publishing’s stock opened the day by rocketing up more than 50 percent. Wall Street probably likes it because of Tribune’s dwindling print business, which justifies the lower Ebitda on the Gannett offer.
* Earnings before interest, taxes, depreciation and amortization is the figure bankers typically look at when determining a takeover price for newspapers.


Post a Comment