Analyst: Newspapers Could Lose $180 Million in Federated/May Merger

By: Jennifer Saba More analysts have weighed in on the Federated/May merger, and the consensus is that newspapers will lose advertising in the outcome.

According to Deutsche Bank, Federated and May accounted for $900 million of newspaper advertising in 2004, or approximately 4% of the retail category (and 2% of total newspaper advertising). The firm's report said that assuming Federated cuts its advertising budget down by 20%, about $180 million of that would be sliced from newspaper spending. That would bring the total retail category down by 1% and total advertising revenue down by 0.5%.

Merrill Lynch put pencil to paper and estimated that Federated and May stores are located in the same malls in 93 places, or in 10% of the total combined store base of 951 stores. The heaviest overlap occurs in California and the Northeast. Merrill Lynch retail analysts estimate that about 74 stores could be closed as a result of this merger. Deutsche Bank's retail analyst pegs it at 75 stores.

The newspaper companies with the most exposure, Merrill says: Tribune (in Los Angeles and Baltimore), Washington Post, Knight Ridder (in Philadelphia), and McClatchy. Merrill notes that Federated and May represent about 6% of Knight Ridder's retail ad revenue and 4% of McClatchy's retail advertising. The department stores contribute in the low single digits to Tribune's retail advertising bottom line.

On the upside, Deutsche Bank believes national papers like USA Today, The New York Times, and The Wall Street Journal could benefit "as Macy's becomes a truly national brand."


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