Sunday, June 06, 2010

Honolulu Advertiser reports paper sold for $125M; in today's last edition, staff 'writes final chapter'

[Pressman Roscoe Nishida checks final Advertiser last night]

That $125 million sale price is roughly half what former owner Gannett paid for the Advertiser in 1992, according to a source cited today by the paper.

This is the first time a price tag has been disclosed. Terms were not revealed Feb. 25, when Gannett announced plans to sell the 154-year-old paper to its cross-town rival, the Honolulu Star-Bulletin. Starting tomorrow, new owner Oahu Publications will publish the combined newspapers under a new flag: the Honolulu Star-Advertiser. The deal between Gannett and Oahu closed May 3.

In today's final edition, the paper said the $125 million deal was well above discounted prices for newspapers sold on the mainland. "That is a lot of money, given that the value of newspapers have gone down considerably and the outlook for the newspaper business has been generally bleak," Gerald Kato, a University of Hawaii-Manoa journalism professor, told the Advertiser. "This reflects the value of having a monopoly in Honolulu."

Honolulu also represented an unusual market: a two-newspaper city where an existing newspaper owner was willing to pay a premium to buy what is now a monopoly business. Such a monopoly status was a main reason that the U.S. Justice Department's anti-trust division reviewed the deal before giving it a final OK.

The merger came at another cost: The loss of more than 400 jobs, making it one of the largest mass layoffs in Hawaii in recent years, staff writer Rick Daysog reported in today's story. The Star-Advertiser hired 265 employees from the Advertiser and kept 209 from the Star-Bulletin. That meant about 300 of the former Gannett workers are now jobless in an economy still recovering from the real estate collapse and a weak tourism market.

Today's last edition ends a 154-year run that "helped document and define the course of island life from the days of the Hawaiian kingdom to the arrival of jets and the digital age,'' reporter Dan Nakaso wrote in the paper's final lead story.

"Honolulu is now a one-newspaper town for the first time in its history. Like Seattle and Denver, cities that also lost newspapers as the global recession deepened, Honolulu will now adjust to life with only one thump on the front step, one headline peeking from the newsbox on the corner,'' he said.

Related: The Advertiser's special report on its sale

Earlier: What Honolulu deal says about more paper sales

[Image: Norman Shapiro, Advertiser]

18 comments:

  1. Unfortunately, the Advertiser did not upload a .jpeg of its final front page to the Newseum's database. If anyone out there has access to that image, please e-mail it to me, or provide a link, to jimhopkins@gmail.com. I would like to post it here.

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  2. It seems to me that anything in the range of $125 million would be considered "material" under SEC regulations, so would need to be reported. I don't know how long companies have to make such SEC disclosures. This deal closed May 2, in the current quarter, so perhaps it will show up in the next financial report.

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  3. This is a battle Gannett should not have lost. Corporate just threw in the towel although the Advertiser had the edge in circulation and was reported to be profitable. In contrast, David Black, owner of the Star-Bulletin, acknowledged he put $100 million into his paper in the last decade.
    But Black refused to back down and said he was in for the long haul. Amazingly, Gannett wasn't. I think that's a reflection of a corporate decision that is downsizing community papers, and destroying them. When he left, Moon said Dubow had adopted policies that would destroy the community papers, and we now see how true that was.
    Since I contend they could have won this battle, why did corporate collapse and sell out for half the price they paid for the paper? Union campaigns to discourage business from advertising in the Advertiser certainly played a role. It was an unusually effective campaign, although the Advertiser was the favorite of the local business community and regarded as being pro-business.
    But it is also clear something else is going on here, and again we have to refer back to Moon's departing observation which should be carved in marble in the lobby of the Crystal Palace. Take a look at Honolulu and be warned: the future of community papers is very much in peril.

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  4. On the $125 million, we don't know if it a lump sum or to be paid off over a period, or when it is supposed to be paid. These deals are complicated and I see David Black, owner of the Star-Bulletin has been in Hawaii for the last two weeks. If it is all in this quarter, we should see it in the quarterly report next month.

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  5. Moon's departing observation referenced Honolulu? Can you elaborate? When and where did this occur?

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  6. No, Moon suddenly departed in March, 2009 and the announcement of the sale of the Advertiser came last February. He was referring in talking to colleagues about his departure to some decision Dubow had taken regarding community papers that would destroy them. In July GCI announced the 2,000 layoffs in the community newspaper division. I don't know when Black approached Gannett with his offer to buy the Advertiser. It is my contention there is a connection.

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  7. A clarification: Gannett announced 1,400 in July. But the final number reached about 4,500 by year's end -- a fascinating figure for those of us who follow reader My Boss's posts.

    As to Moon, I've always wondered why McCorkindale supported Dubow over Moon as CEO. Seems to me that Moon had at least as much operational experience.

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  8. Re Jim's 1:47 -- It was an even bigger wonderment to Gary Watson, who figured he was in like Flynn when McCorkie cashed out.

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  9. Jim, based on the spare details reported by the Advertiser story, I think the key points of that story are false.

    It attempts to show that the sale price was high, and that the deal was better than for other recent newspaper deals. Neither assertion is backed up.

    It's not clear whether this is due to poor reporting, spin by a single anonymous source, or both. Because the story appeared in the last Advertiser issue, it’s probably raw spin by a single Gannett source. Gannett used to have a strict policy against that sort of thing.

    Black didn’t pay $125 million. The actual equity that goes into deals like this shows how much faith a buyer has in its new asset. Based on the story, it's possible that the equity was just $40 million, with all it coming from Fairfax Financial, and an additional $40 million of leverage from Gannett as seller financing. The remaining $45 million may be Black's assumption of existing debt and other liabilities.

    (Sellers often offer to seller-financing to move a stalled deal and to increase the perceived value of a deal. The seller’s cost of capital in a seller-financed deal is often less than for the buyer, and its use can result in a misleadingly favorable headline for the seller. This gives the seller something it can crow about to stake holders and stockholders.)

    It's also possible, based on the Advertiser story, that there's no, or virtually no, equity being put up, and that the $40 million investment supposedly chipped in by Fairfax is entirely financed by Gannett, and the remaining $85 million is Black's assumption of liabilities.

    This would make the good sale price angle either accidental or intentional spin.

    Furthermore, the story states the purchase price "is well above the steep discounts that newspapers on the Mainland have been selling for in recent years."

    Not the U.S. mainland, surely.

    In April, the Philadelphia Daily News and Inquirer were sold to a group of debt holders at a court auction for $139 million. Their bid included $69 million of equity. The Philadelphia papers are more influential in the newspaper and political world, and their combined 356,000 circulation is far greater than Advertiser's 109,000.

    But as Gannett's hard-core business acumen refused to allow the Advertiser to lose money, even in 2009, the Philadelphia papers have lost tens of millions of dollars.

    Yet the buyers of the Philadelphia papers appear to have much more skin in their deal than Black does.

    Additionally, in March, 2009, distressed asset buyout shop Platinum Equity agreed to buy the San Diego Union-Tribune, which also has a larger circulation of 249,000. Details of that transaction weren't disclosed, but it was reportedly an "all-equity deal worth less than $50 million." Unlike the Advertiser, the Union-Tribune was almost certainly losing tens of millions of dollars.

    But in March, 2009, just 7 months after the Lehman Brothers bankruptcy when the M&A markets were still mostly frozen, the few companies that were being sold were moving at steep discounts. That's because only the most desperate would take the low-ball prices offered at the time.

    Yet it looks as if the equity for San Diego deal was also higher than it was for the Advertiser purchase, based on the Advertiser story.

    (Curiously, David Black, who is the new owner of the Advertiser assets, advised Platinum Equity the Union-Tribune deal.)

    Granted, the Philadelphia and San Diego deals appear to include valuable land that the Advertiser deal may not have offered. And it's possible that the savings from major overhauls in Philadelphia and San Diego will yet produce the kinds of profits that Gannett has generated for decades. But it doesn't appear that Gannett made Black put up much for the ability to run a monopoly newspaper operation.

    If the Advertiser deal was actually a good one, maybe someone can give us some actual details to show why.

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  10. Moon came in for a lot of criticism, much of it written on this blog at the time. But I recall him fondly as a newsman and someone who came up through the newspaper ranks. Thanks to his TV background, Dubow lacks that sort of knowledge of newspapers, which after all provide the lion's share of the revenues of this company. Moon had his failings, but he would have been a better choice than Dubow.

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  11. Anon 6:24 did an excellent analysis and gives a convicing argument that Black paid nothing for the Advertiser. Given the questionable activities at the Crystal Palace, it wouldn't surprise me.
    You won't find much on David Black in the press, which is surprising because he's using the Platinum Equity (which bought the San Diego Tribune with his assistance) as his bank for the pending purchase of CanWest, a big Canadian chain. If it goes through, Black will become the biggest publisher in Canada, which is not all good news for Black because Canada is historically suspicious of newspaper barons and he will come under government scrutiny.
    He isn't a newspaperman, but a businessman. He has a degree in civil engineering and an MBA. He is seldom interviewed, but has talked to reporters including a reporter for the alternative paper in Seattle, which produced a good profile. He has been purchasing newspapers in Washington state.
    He takes a business approach to running his newspapers. If you search the Web you might find a story about three execs at his Victoria, B.C. paper resigning after a story ran showing it was cheaper for Canadians to buy cars in the states than in Canada. Victoria's car dealers protested, and Black sent out a letter reminding everyone that local advertisers paid their paychecks.
    Wish everyone at the new Star-Advertiser well, because they are going to need well-wishers.

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  12. gannett dropped $80 to $90 million on the new press about five years ago (buying property, putting up new buildings and the state-of-the-art press). . . black and the star-bulletin at the time were printing on a press that probably should have been put away a decade ago. . . now that black owns the press (part of the asset sale) mailings have already gone out to other publications that were printed by black, that the rates will be going up soon. . . that's where, i believe, the real capital and investment is going to. . .

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  13. While Black Press is private, we can get a glimpse of its operations through the filings of the Toronto Star, which owns about 20 percent of the company. Torstar is publicly traded. Torstar this year reported $1.8 million in revenues from its share of Black Press, which indicates Black Press made $8 million in revenues in 2009. That is certainly not a hell of a lot of money, and definitely not enough to get the banks to loan you $125 million. So I have to agree that $125 million pricetag is not what Black paid.

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  14. Does anyone think that this deal was a warning shot to other union shops in the Gannett chain? If anyone was wondering, it appears that Gannett doesn't like unions very much.

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  15. 8:07: Black lost his CanWest bid last month. The papers sold to a group of creditors headed by Canada's National Post President Paul Godfrey for $1.1 billion.

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  16. They didn't need to fire any shots at unions, IMO. The unions have given up. I am astonished that we have not heard protests from the elimination of entire press shops and mailers at some consolidated unions, and other reductions in staffing made in the back shops.

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  17. Black had other facets of his operation including commercial printing, magazines and MidWeek (a direct mailed newspaper which had all the grocery ads), which were making money to offset his losses in the daily. It was obvious to Gannett that he was not going away. So they sold The Advertiser and then 400 loyal Gannett employees lost their jobs.

    Also, the Honolulu leadership under Webber, Cusato, Platte and Shroeder didn't have a clue how to compete against them.

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  18. While it's true that newspapers as a whole are withering under the Great Recession and the generational reading preferences, Gannett further assures its papers a slow, abject demise. Thanks to Gannett Blog, I see that ALL Gannett papers are skinned and boned to the point where all that is left is carrion for vulture funds. Corporate will suck the remaining life blood from its papers to the very end. You can sing the praises of ShopLocal, cars.com and MomsLikeMe all you want, but this is a self-cannibalistic creature whose greatest accomplishment is fattening itself up for Wall Street by feeding on its own people.

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