‘Star Trib’ Fire Sale Likely Won’t Affect Smaller Papers’ Value

By: Mark Fitzgerald

Bozeman, Mont., is not exactly a world away from Minneapolis, but the newspaper business looks very different from the desks of newspaper brokers Cribb & Associates. While McClatchy’s loss-making sale of the Star Tribune to private equity firm Avista Capital Partners has some wondering about a ripple effect on metro newspaper valuations, prices for small and mid-sized dailies and weeklies are holding up very well, indeed, Cribb President John T. Cribb said Wednesday.

In a turnabout to past boom-and-bust cycles for newspaper sales — think of the volatile markets of the mid-1980s and pre-9/11 1990s — the softening of prices at metros is not dragging down the valuations of smaller papers, say Cribb and other specialists in smaller-paper brokering.

“We’ve long maintained that the industry really is two parts,” Cribb told E&P.

Metros like the Star Tribune of Minneapolis, he said, face declining circulation, competition from the Internet, and the commodization of their international and national news franchise: “We think that part of the industry will continue to struggle and have valuation issues.”

On the other hand, the smaller papers “not only do well — they sell well,” Cribb added. The brokerage firm is working on five deals that likely will close in January.

Media Consultants Inc., a firm in Cheyenne, Wyo., sees the same active market, said President Michael D. Lindsey.

“The market is very aggressive for smaller dailies,” he said. “It’s a market that’s active on the buyer side — but we need listings. There aren’t enough good papers up for sale.”

Multiples are holding up, and are unlikely to be shaken by the Star Tribune deal, in which McClatchy is getting $530 million in cash — plus tax-loss carrybacks it says will add another $160 million — for a paper it bought eight years ago for $1.2 billion.

“We’ve had really good multiples, and a couple that have sold are pretty astounding,” said Lindsey.

Mid-sized dailies are still selling for about 10 to 12 times trailing EBITDA (earnings before interest, taxes, dedications, and amortization), with weekly clusters going for multiples of 8 to 10, according to Cribb.

He’s also seen some astounding multiples. One recent daily that was only breaking even went at a price that statistically was “infinite,” Cribb said with a laugh.

Though McClatchy is selling the Star Tribune at a loss, small-paper brokers don’t necessarily think that will impact the valuation of possible future sales such as for all or parts of Tribune Co., whose dailies are all metros. The tax advantages of shedding the profitable but apparently financially slipping Star Tribune, and the need to pay down the debt taken on for the blockbuster $4.5 billion acquisition of Knight Ridder makes the sale unique, they said.

“It kind of looks like McClatchy is cutting and running on its big Midwestern property,” Lindsey said. “Maybe they figured, ‘We’ve taken some profit out … and it’s time to go.'”

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