I don’t plan to do much blogging this week, but I do want to call your attention to a few items:
- Chuck Tanowitz and Adam Reilly have both written sharp analyses of GateHouse Media’s lawsuit against the New York Times Co. I think Reilly is on the mark with his observation that the Globe, through its Boston.com Your Town sites, is going beyond mere linking and is trying to establish itself as a substitute for GateHouse’s Wicked Local sites, while using GateHouse’s content.
- Joe Dwinell of the Boston Herald has also weighed in with a good item [link now fixed] on the suit. I do disagree with his characterization of this as “David vs. Goliath.” Both GateHouse and the Times Co. are large, publicly traded media companies that are fighting for their financial lives. Call this Wounded Goliath I vs. Wounded Goliath II.
- Sean Polay, a top Internet guy for Rupert Murdoch’s Ottaway Newspapers (including the Cape Cod Times and the Standard-Times of New Bedford), says he wouldn’t mind at all if Boston.com linked to Ottaway content. Interesting, given that Herald publisher Pat Purcell recently accepted Murdoch’s offer to run the Ottaway papers.
Finally, a source has provided me with a copy of Barclays’ most recent report on the New York Times Co., the one that placed the value of the Globe at a mind-bogglingly low $20 million. I have posted it (PDF), so you can have a look for yourself. Perhaps a few gimlet-eyed Media Nation readers can find some gold.
I’m dubious. As you will see, Barclays values the Globe at somewhere between $12 million and $20 million — lower than the value of the “Worchester Papers,” which it places at somewhere between $15 million and $25 million. That can’t be right.
And, come on — the “Worchester Papers”? Does someone at Barclays think the Worcester Telegram & Gazette are two different papers?
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Valuing the Globe at $12-20 million seems crazy low, but there might be some accounting reason behind it (like some big debt that is on the Globe’s balance sheet that is not on the “Worchester” papers’ balance sheet).Since the Barclay analysis gives the name of the lead author, this would be a good case for calling the analyst first before judging his conclusions as crazy. He’s paid to have reasons to justify his financial recommendations.
So who exactly is ‘Barclays’ and what particular authority do they have in determining the monetary value of a newspaper?
Twelve to twenty million dollars? I’ll bet the Taylor family, who sold the paper to the NY Times is thanking its lucky stars it got out when it did. This is looking like the deal of the ages for them. For the Times and the Sulzbergers, not so much.
The value for the Boston Globe based on the information supplied can not be separated from the New York Times Company, thus the value of the Boston Globe remains unknown.As a going concern it is valued at three to five times its expected cash flow in ’09. That may not be a horrible assumption. However, if we are in an economic decline which will end the Globe’s cash flow within a few years, then liquidation has to be applied at termination. If we are in a rough cycle and cash flow will improve, then an exit value should be applied at the end of the cycle.The value includes all of the NYT physical assets and real estate, pension obligations, etc.The assets normally employed to produce the theoretical cash flow of 4 million ’09 needs to be included as part of the Globe value, less the cost of obligations, and the company as a whole is worth at least liquidation. And, with obligations, it is possible liquidation value is less than its most likely theoretical discounted future cash flows in which case it is worth more as a going concern than liquidation. The real estate alone must be worth quite a bit. If these assets, real estate and physical plant and ongoing obligations are not included in the 4 million cash flow, then the estimate of cash flow is worthless, assuming of course, that the estimate is good to begin with. For example, if an investor were to buy the Boston Globe anticipating a cash flow of $4 million and it did not include the physical assets and as such had to pay rent for building and equipment, cash flow would most likely be negative, and thus, any investment would be worthless unless we are in a downward cycle that will rebound to great prosperity for newspapers. The bottom line is that the $12 to $20 million figure is worthless even though the value of the entire New York Times Company has validity but that is still just an opinion. The best economic, financial and political experts have a poor score this year on predicting and preparing for and preventing a horrible financial crisis. So, we all know now how unreliable it is in predicting the future. And, thus the risk, and thus the lower value.
The low value for the Globe is based on its poor profitability. Based on the Barclays report, the Globe is forecasted to make $1 million less than the WT&G in 2009. Since the Globe's revenues are much higher than the WT&G's, the difference is in the cost structures of the two papers. All those lofty salaries paid to name-brand Globe reporters and columnists make a difference.I think the interesting thing is to view the Globe's coverage of the Red Sox with the understanding that the parent company's investment in the Sox is worth far more than its investment in the Globe. Would you risk a bit of journalistic credibility at your $20 million investment if it came time to protect your $150-$200 million invesment?
I think the Barclay’s numbers are suspicious at best — nevertheless, it appears the analyst is valuing each of the Times properties at 5x EBIDTA, which equals and/or assumes about a 20 percent operating margin. Margins like that aren’t impossible in good times, and they can reach 30, 40, or 50 percent in flush years. But these are not good times; my guess is the Globe still has positive cash flow but it’s a close call — maybe a margin of 5 percent. If that’s the case, and an investor is willing to accept such returns, the valuation would then quadruple, more or less – to $60-$80 million. That’s still not a hell of a lot. The worst part for any investor is that there’s no predicting what will happen next year, or the year(s) after that — or, even, next month. With that much uncertainty, who would buy anything?
Barclays expresses an opinion that the New York Times Company is worth $700 million to $1.2 billion much of which is based on its estimate of next years earnings before interest, taxes, depreciation, and amortization. Worcester and Boston’s contribution to EBITA is part of the value. No way can it be implied or expressed that the value of The Boston Globe is $12 to $20 million. That does not mean if singled out and valued that it could not be in that range by coincidence. Residual earnings are those earnings after applying a return on the value of physical assets. If there are no residual earnings now or on the horizon, just as an example, The Boston Globe as a company would be worthless. Cash flow alone does not tell the whole story. The cost of cash flow has to be factored. Too much is missing from Barclays to separate or compare individual properties such as Boston or Worcester. This does not negate nor validate the worthiness of Barclays opinion.
I should add that a 5 percent operating margin obviously cannot cover interest, debt, taxes and amortization (the IDTA part of EBIDTA). Thus, claims that the paper is losing $1 million a week, or a month (which was it?) are likely close to accurate when those accounting factors are included.
Newshound, you’re right about what we see in the pdf not being sufficient to either validate or void the Barclay’s opinion. Those breakouts are conjectural. We’re all casting about in the dark.
A few newspapers might have had cash flow of 40% in great years milking their newspaper business to death. Some of those who made the most money went broke. In some cases there are still skeletal remains. Connecticut is an example. The bottom line though, is that cash flow alone isn’t everything. It is possible to run a newspaper with all work contracted out or on all leased equipment and real estate, but normal operations need to allow about 4% for depreciation. Publicly traded pay taxes. Jeffrey, you are most correct about the inability of predicting future earnings. And, that is what changes this from investment grade to speculation. Newspaper businesses traditional were stable and easily considered investment grade, and thus commanded top dollar because of their perceived durability and quality of earnings stream. But, not now. When the predictability of the future is so difficult, and beyond that looks so bleak, this truly is speculation. Some people gamble and win. Not all as we know. We are in an economic downturn that could take 10 to 20 years to fully recover, maybe longer. I hope not.
There is a column in Sunday’s Providence Journal by David Carr about a newspaper publisher who hasn’t gone up on ad rates in ten years, shuns the Internet (much more than GateHouse) and is doing just fine. He isn’t predicting the future, but says he’s had a great run.This is the site:www.projo.com/opinion/contributors/content/CT_carr28_12-28-08_AGCNL8E_v8.3e3114b.html
Newshound 8:50 … thanks for the URL.
NewsHound: I actually blogged on Carr’s column recently. As you’ll see, I wasn’t too impressed.
Dan: 3.5 employees met for their annual Christmas dinner and all are “very happy” with their lifestyles and “secure” jobs in what appears to be a “good future.”
An interesting nugget in the Barclay’s report is the decline in John Henry’s worth, from over a billion to 300-odd million. Wouldn’t that make the Sox among his biggest assets? At some point or another isn’t he going to need some liquidity?The question of the day: Which will happen first: Henry sells the Sox or Purcell suspends publication of the Herald.My money is on the Herald not making it to the Fourth of July.
An interesting nugget in the Barclay’s report is the decline in John Henry’s worth, from over a billion to 300-odd million. Wouldn’t that make the Sox among his biggest assets? At some point or another isn’t he going to need some liquidity?The question of the day: Which will happen first: Henry sells the Sox or Purcell suspends publication of the Herald.My money is on the Herald not making it to the Fourth of July.
I suspect Mr. Purcell and Mr. Murdoch have something in mind, whether it be a soft landing or refueling for takeoff. Based on current economic conditions and so much uncertainty, I suspect this is being played cautiously but with preparedness for quick response.