Lee Enterprises Buys Howard Publications

By: Mark Fitzgerald

“This is exactly the acquisition we’ve been seeking,” an exultant Lee Enterprises CEO Mary Junck said in a conference call this morning, announcing that Lee is buying Howard Publications, the technology-savvy chain of 16 dailies, in a transaction valued at $694 million. “Although we had been actively seeking acquisition possibilities, we actually didn’t expect to find something this good — and at a good price.”

Two years ago, Davenport, Iowa-based Lee jettisoned its television group and declared it would devote itself to acquiring dailies with circulations of 30,000 to 125,000 located in mid-sized markets. What followed was a frustrating stretch for Lee and the analysts who watch the company.

Junck suggested the Howard buy — which will increase Lee’s combined circulation to 1.1 million and boost its annual revenues by 47% to $647 million — was a once-in-a-lifetime corporate opportunity.

Lee is paying $749 million in cash for 100% of Howard Publications stock. Because the deal includes $50 million in cash on the Howard balance sheet and because of other adjustments, the effective purchase price is $694 million. That is about 14.1 times EBITDA (earnings before interest, taxes, depreciation, and amortization) based on Howard’s results for fiscal 2001, or 12.3 times EBITDA based on the 12 months ended April 2000, Howard’s most recent full year before the newspaper recession.

Lee will pay $440 million with cash on hand and borrow the rest from banks at a rate Chief Financial Officer Carl Schmidt estimated would be “slightly north of 3%.”

Lee said the deal, which is slated to close in the next 90 days, will be accretive to earnings by about 15 cents in its next full fiscal year starting in October 2002. Junck said after the deal is completed, Lee will still have room on its balance sheet to do more deals, as well as pay back debt and buy back shares.

Lee plans to trim costs, increase the revenue growth, and improve profit margins at the Howard publications, Junck said. Howard’s EBITDA margin is in the 25% range while Lee’s is in the 30% range, for example, she said.

Howard, which recently moved its headquarters to Longview, Wash., publishes the 89,000-circulation North County Times in Oceanside and Escondido, Calif., as well as the largest newspaper in Wyoming, the Star-Tribune in Casper. But it is probably best known for the 88,101-circulation Times in Munster, Ind., which William E. Howard, president of the newspaper division, transformed into a model of newspaper technology. The paper, which continues to win awards for its journalism, has expanded into nine regional zones and absorbed the old Vidette-Messenger in Valparaiso.

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