Goldman on Detroit Swaps: Makes Good Financial Sense

By: Jennifer Saba

Some financial information involving Knight Ridder and Gannett’s newspaper swaps has come to light and Goldman Sachs likes what it sees.

In a note issued today, the research firm did the math on the transactions that occurred last week and came to this conclusion: “Assuming no regulatory hold-ups, we think this is one of those rare instances where both sides come out ahead.”

According to filings with the Securities and Exchange Commission, Knight Ridder sold the Detroit Free Press to Gannett and will receive a total of $285 million for the deal (including $23 million in balance sheet adjustments). Goldman’s note said Knight Ridder was on track to generate approximately $25 million in EBITDA from Detroit in 2005 — down from perhaps $30 million in recent years.

Regarding the other trades, Gannett will receive $239 million in cash plus Knight Ridder’s Tallahassee newspaper in exchange for Gannett’s papers in Boise, Idaho, Olympia and Bellingham, Wash.

The research firm estimates that Gannett’s properties enjoyed high-30% EBITDA margins. Tallahassee is probably a bit lower, coming in somewhere at mid-30% EBITA margins, said Goldman. This is “consistent with Knight Ridder’s strategy of spending more on editorial versus Gannett.”

Going deeper, Goldman believes that Boise, Olympia, and Bellingham probably generate combined EBITDA of roughly $35 million while Tallahassee produces about $13 million.

Though happy with the transactions, Goldman still maintains an “in-line” rating on both stocks.

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