UPDATE: E.W. Scripps Considering Alternative Strategies for Newspapers

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By: Jennifer Saba

Wall Street’s darling of the newspaper sector, E.W. Scripps, could be exiting the newspaper business.

Executives at the Cincinnati-based company stated during an investor conference on Tuesday they are evaluating different options regarding its newspaper assets.

Scripps management said they have been looking at different strategies over the past six months to unlock more value in the stock. “Clearly the most advantageous route in some form or fashion [is to] separate the newspaper business from the rest of the business,” said Joseph NeCastro, Scripp?s executive vice president/finance and administration, during the conference.

He acknowledged that the newspaper industry?s woes over the past year have accelerated management’s actions to either spin off its newspaper division or possibly sell some papers. “Newspapers are much more troubled,” NeCastro said at the conference. “It’s hard to call the bottom.”

However, Scripps is in the very early stages of making any decisions.

“We were positively surprised by the company’s comments which indicate that management has given more serious consideration to this possibility than we had previously thought,” wrote Goldman Sachs analyst Peter Appert. “Elimination of the newspaper unit would meaningfully enhance the company’s growth prospects and likely translate into a higher valuation for the shares.”

Scripps is one of the few companies in the newspaper sector rated a “buy” by several analysts. But it’s not because of its newspaper assets; rather, over the past decade, Scripps made shrewd investments in fast-growing properties like the Food Network and Shopzilla.

Its newspaper division accounts for roughly 29% of the company’s revenue while its network and interactive properties make up 42% and 12% revenue respectively.

By shedding its newspapers, Goldman Sachs estimates the “new media” businesses could account for 82% of earnings. “Strategically,” wrote Appert, “the transformation of Scripps’ business model would be dramatically accelerated.”

Even so, Scripps newspaper properties tend to perform better than its peers. Goldman Sachs estimates EBITDA margins of 26% in 2006 and Scripps could fetch a multiple of 7 to 8 times 2007 estimated EBITDA for its newspapers.

Scripps owns the Commercial Appeal in Memphis, Tenn., and the Naples (Fla.) Daily News among other papers and is involved in a few joint operating agreements including the Denver Newspaper Agency.

While management is mulling a possible restructuring, there are some internal snags. Foremost are the conditions imposed by the Scripps Family Trust. Merrill Lynch analyst Lauren Rich Fine wrote there is a stipulation set by the family that requires newspaper ownership.

Yet neither Fine nor Appert view this as shutdown. Scripps could spin out its non-newspaper businesses or sell most of its papers, suggested Fine. Scripps executives have already started talks with the family.

“Management’s major concern is that the newspaper business could decline in value over time hurting the overall value of [Scripps’] shares,” wrote Fine. “We would also note that some investors are hesitant to own the stock due to the newspaper business regardless of the faster overall growth rate.”

Merrill Lynch maintained a “neutral” rating on Scripps noting that its cable network properties could be peaking in value.

Goldman Sachs rated Scripps a “buy.”


Wednesday afternoon, the Romenesko site at www.poynter.org posted the following memo sent to staffers by Scripps’ Denver daily, the Rocky Mountain News, by managing editor Deb Goeken

Everyone: I’m attaching the E&P story on Scripps just in case there’s one of you who hasn’t seen it today.

I want to reassure everyone that there is no sale imminent. Business
reporter David Milstead interviewed a company executive this morning who said it’s important to note that nowhere in the question and answer did a Scripps exec discuss an outright sale. Instead, there was some talk of splitting the company into its newspaper and non-newspaper components to take advantage of the stock market valuation of the company’s popular cable network offerings.

It’s also important to put this question into the context of the newspaper industry. It is the question of the day, and Scripps executives had to be ready to answer it in a prudent way. As [editor] John [Temple] told me this morning, it was an honest answer by leaders of a public company to a question that is being asked of every newspaper company in the industry.

John, by the way, is on the road at some of our other Scripps newspaper properties, working with them to make their papers better, not prepare them for a sale.

I’m attaching the actual transcript of the question, so that you can read it. Also, the audio version of the conference is on Scripps’ Web site.

Meantime, my best advice is to do what we always do – focus on great journalism and putting out the best newspaper we can.

Come see me if you have any more questions.

Thanks, Deb

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