Hollinger’s for Sale

By: Mark Fitzgerald

As the shock waves from the Hollinger International Inc. scandal reverberated last week from its executive suites through trading floors of Wall Street and Toronto’s Bay Street and in the offices of U.S. and Canadian financial regulators, employees at the company’s only American cluster took a typically Chicago attitude: What’s in it for me?

The easy answer is: a new employer. Hollinger retained Lazard LLC to look at selling the newspapers as a group or individually. At first blush one of the most attractive, and yet problematic, of its candidates for the auction block is the Chicago cluster. It is anchored by the 481,798-circulation Chicago Sun-Times and includes an eclectic mix of dailies and weeklies.

Inside Hollinger, the Chicago cluster’s financial performance was second only to its United Kingdom group, generating an operating profit last year of $36.1 million on revenues of $441.8 million. Yet, some perennial shoppers such as Dean Singleton’s MediaNews Group Inc. quickly disclaimed any interest in bidding. Another natural, Tribune Co., publisher of the market-leading Chicago Tribune located across the street from the Sun-Times, was also said to be unwilling to make an offer on its rival while media ownership regulations remain unsettled.

Newspaper brokers last week said the biggest obstacle to a sale of the Chicago cluster is Hollinger’s natural interest in selling it in its entirety. “There’s probably not a market for the weeklies unless a person also buys the Sun-Times,” said Michael D. Lindsey, president of Cheyenne, Wyo.-based Media Consultants Inc. “I would think they would sell it as a package. With clustering, that’s what you would want to do.”

But the Sun-Times is a second-place newspaper whose competition is the flagship of a media and entertainment giant that in recent years has demonstrated an ability to adapt quickly to pursue new markets. “This looks like a tough deal to me,” said one broker, who demanded anonymity. “Tribune can’t buy it, and then you’ve got to find someone who wants to take on Tribune. They’re not as rough as Gannett, but they’re plenty tough competitors.”

Tribune is not the only formidable competitor in the crowded Chicago market. The Paddock family’s Daily Herald has become Illinois’ third-largest paper serving the prosperous northwestern suburbs, which is also the stomping grounds of The Northwest Herald and other Shaw family newspapers. Both publishers increasingly target the markets of the former Copley dailies and weeklies that Hollinger now owns.

In that environment, detaching individual properties — such as the Sun and Pioneer Press weeklies that serve affluent suburbs and city neighborhoods — is almost impossible. “And, of course, (Hollinger’s) worst nightmare is that they’ll be left with something after a sale,” one broker said.

Still, brokers and financial analysts remain convinced someone will buy the properties. Consider the Sun-Times, which has been the No. 2 newspaper in Chicago for decades, yet has managed to attract four owners since the Field family put their long-held tabloid up for sale in 1983.

Just as with the Freedom Communications properties this summer, Hollinger’s Chicago cluster comes on the market at a time of pent-up demand. “The traditional players are looking — and so are the ven caps,” said John T. Cribb, president of Bozeman, Mont.-based Bolitho-Cribb & Associates. In shopping around a paper recently, Cribb said, more than half of parties showing interest were venture capitalists.

A venture capital group once owned the Sun-Times, and many of the community papers in Hollinger’s former American Publishing Co. unit are now owned by chains backed by V.C.’s. But there’s a problem with the venture capitalist scenario, too: Daily newspaper prices have remained strong despite the whacking the newspaper business has taken in the past two years. “There’s this perception among sellers that prices have tanked — and it’s just not true,” Cribb said. “Multiples have held up fine. There’s just not much (for sale) out there.” Cribb and other brokers say better-quality dailies are selling at margins of 12 to 14 times cash flow or three times gross revenues.

That may prove too rich a price point for venture capitals, who may not see an opportunity for substantial returns from the Sun-Times because any excess operating costs were long ago shaken out by Hollinger. Under David M. Radler — the top Hollinger executive and Sun-Times publisher who ran the papers until resigning last week — the Chicago cluster papers are already operating very leanly.

Still, the Sun-Times is unlikely to lay unclaimed, brokers say. “Will somebody buy it?” one broker said. “Sure. There will be five or six groups bidding for it — though my guess is, they won’t (include) one of your high-level newspaper companies.”

Hollinger’s Chicago cluster includes seven dailies in Illinois, among them the Sun-Times, Daily Southtown in Chicago, The Herald News in Joliet, and The Beacon News in Aurora. The Post-Tribune in Gary, Ind., is also part of the group, along with dozens of non-dailies.

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