After The Bell With Fitz & Jen: Newspaper Stocks Give Back Some Profits

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By: Mark Fitzgerald and Jennifer Saba

On a day of comparatively light trading in the sector, seven of the 13 publicly traded newspaper-heavy companies that E&P tracks ended on the down side on Wednesday. Media General (NYSE: MEG), which soared by nearly 14% on Tuesday, was down slightly, closing at $15.88, off 10 cents, or 0.6%.

As Media General was trading down Tuesday, Harbinger Capital Partners filed with the Securities and Exchange Commission the presentation it made at Gabelli & Co., laying out its case in the proxy fight with the Richmond, Va.-based publisher and TV station operator over four seats on the board of directors.

Harbinger, which in just ten months has become the company’s second-largest shareholder with an 18.2% stake, said Media General has a “consistent but consistently flawed strategy,” and has blundered badly in acquiring “non-core assets,” such as the buy earlier this week, and overpaying for a group of TV stations.

Joseph Cleverdon, Harbinger’s director of investments, said the group’s stock has declined 59% since its first purchase ten months ago. He also said Media General has allowed consolidated net free cash flow — EBITDA (earnings before interest, taxes, depreciation, and amortization) minus capital expenditures and interest — to fall 65% since 2005, and 80% since 2004.

Harbinger’s solution: Cut costs more aggressively, reduce spending, and “most urgently, consider alternatives for Florida market properties.”

Media General has blamed much of its recent financial performance on the housing and employment collapse in Florida, which has badly hurt its biggest paper, The Tampa Tribune.

Marshall N. Morton, Media General’s vice chairman and CEO, countered in his presentation that the company’s dual-class stock structure, ensuring Bryan family control, allows the company to focus on the long-term.

And far from being “non-core” assets, Morton said, the digital purchases, and the chain’s “Web-first” approach to news, has positioned Media General for the future better than other newspaper companies.

Fitz comment:

Morton noted that the insiders with the B stock are hurting along with investors holding the publicly traded A stock. Under its rules, MEG B shares cannot carry a “control premium,” and both classes pay the same dividend.

On that point, Harbinger criticizes Media General for what it says is a too-generous dividend that should be cut to free up cash to pay down debt. Morton countered that Monday’s sale of SP Newsprint, plus the impending sale of three TV stations, should generate about $100 million for debt reduction this year. He figures Media General will end the year with an outstanding debt of about
$770 million.

By the way, Jen, on our podcasts, you’ve supported Media General management’s in-your-face battle tactics against Harbinger. But I see that The New York Times Co. (NYSE: NYT), which came to a peaceful accommodation with Harbinger in its potential proxy battle, again ended the day up, closing at $19.43 up 1.2%. Is appeasement maybe more attractive to the Street?

Jen comment:

I say: “Morton keep up the good fight!”

It’s clear that what you report, Fitz, about Harbinger’s “game plan” is no strategy at all; rather, Harbinger wants to strip the company and make what little it can.

Someone please tell these corporate raiders that the mere suggestion of not investing is just bad business. And while it seems tempting to sell off any and all Florida properties, Florida is really just taking a beating that will hopefully subside once the economy turns for the better.

One other note, speaking of the New York Times: Peter Appert over at Goldman Sachs estimated that the New York Times regional properties’ – many of which are located in Florida — EBITDA margin was 29.5% in 2007. That’s looks nice to me.

Back to Media General, Harbinger wants to sell off the Florida Media General properties — provided there are any buyers?

I think the New York Times did the right thing by nominating the two of Harbinger/Firebrand’s slate to the board. If elected Scott Galloway (cough, Red Envelope!) and James Kohlberg will quickly find out how difficult it is to run a newspaper company. And there are too many NYT-friendly board members for them to make much headway.

Here’s how the Street treated the rest of the newspaper sector Wednesday:

A.H. Belo (NYSE: AHC) closed at $11.05, down 5.8%

American Community Newspapers (AMEX: ANE) closed at 70 cents, down 8.2%

E.W. Scripps (NYSE: SSP) closed at $42.84, up 0.8%

Gannett Co. Inc. (NYSE: GCI) closed at $30.75, up 1.5%

GateHouse Media Inc. (NYSE: GHS) closed at $5.98, down 1.4%

Journal Communications Inc. (NYSE: JRN) closed at $7.47, down 0.6%

Journal Register Inc. (NYSE: JRC) closed at 53 cents

Lee Enterprises Inc. (NYSE: LEE) closed at $10.98, up 4.2%

McClatchy (NYSE: MNI) closed at $11.06, down 0.3%

Sun-Times Media Group (NYSE: SVN) closed at 76 cents, down 3.8%

Washington Post Company (NYSE: WPO) closed at $685, up 1.8%.

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