Battle at Daytona Paper Hits Court

By: Jennifer Saba Knight ridder isn't the only newspaper company under siege from disgruntled shareholders. The News-Journal Corp., which controls The Daytona Beach (Fla.) News-Journal, is presently in a skirmish with its minority owner, Cox Enterprises. A trial wrapped up in December with a decision pending.

Much like Knight Ridder, this dogfight is essentially over the value of a newspaper ? always a tricky proposition whether it plays out on Wall Street, or in this case, in a federal courtroom. Like any good controversy, this one is complete with allegations of greed, nepotism, and the thorn in the side of journalists everywhere ? the push for higher profit margins.

First, some background: The News-Journal Corp. is a privately held company controlled by the Davidson family. Besides the News-Journal, the company publishes a legal review, phone directories, and shoppers. The majority owns 52.5% of shares, while Cox holds the other 47.5%.

Cox sued the News-Journal Corp. (NJC) back in May 2004 for "fraud, waste, and mismanagement," alleging that the newspaper's board members squandered the company's money. (Cox and its attorney declined to comment to E&P based on the lawsuit.)

At the heart of the issue is the NJC's move to spend $13 million for the naming rights of a Daytona Beach downtown performing arts center. The center also was intended to be the home of the Davidson family's Seaside Music Theater. Cox claims the $13-million sponsorship was "more than [NJC's] annual net income for the prior two years combined" and that executives used a "corporate cash reserve that had taken seven years to build."

Why was Cox apparently taken by surprise? According to court documents, the Atlanta-based company, which has been the minority shareholder since 1969, relinquished a position on the NJC's board in the mid-1980s due to the Federal Communications Commission's television-radio cross ownership rules. Cox owns WFTV in Orlando.

In an e-mail to E&P, Georgia M. Kaney, the News-Journal's publisher, a board member, and defendant, charged that Cox never really took an active part in the newspaper's management or operations, even when it had a seat on the board. "Their representatives attend the annual meeting of shareholders and sit in on the annual meeting of directors," she wrote. Cox also receives monthly and annual financial reports.

But Cox claims it was never made aware of the sponsorship, court documents obtained by E&P reveal.

Regardless, when Cox dragged the NJC to the United States District Court in Orlando, it invoked an "election to purchase" statute. Under this Florida law, NJC can buy the shares of the complaining shareholder at "fair value" determined by a judge. The NJC can either pay the amount set by the court or appeal the decision and hope for a more favorable outcome.

Here's where it gets even messier: Cox thinks its holding is valued at $145.3 million. NJC claims it's worth $29.4 million.

Cox brought in Owen Van Essen of Dirks, Van Essen & Murray as an expert witness. According to court documents, Van Essen compared the earnings of the News-Journal with those of 11 publicly traded newspaper companies and found that its EBITDA margin of roughly 9% was "below the industry standard" of about 28%. Cox suggests the News- Journal could make this higher percentage without hurting (read: staff cuts, newshole reductions) the operations of the business. In other words, Cox alleges the News-Journal is worth a lot more than it's pulling in.

Kaney says the NJC used a business appraiser as an expert witness who looked at the company as a going concern continuing to do business under its existing strategy. The defense argued that by striving for Cox's industry standard, it would have to cut 400 positions (the News-Journal employs about 900 people) and completely eliminate its newsprint expense. Even under this scenario, court documents show that the company would have to shave off another $5 million.

The non-jury trial wrapped up in December, and U.S. District Judge John Antoon II will decide the final value of the going shares (a decision had not been rendered at press time). NJC is sure of one outcome: According to Kaney, the company will buy out Cox no matter what the cost, though she adds they can always appeal the decision.