Return To The Go-Go Years? p.18

By: TONY CASE THE NEWSPAPER ACQUISITION frenzy of 1995 has some questioning whether the so-called go-go years of the mid-1980s ? a heady time of unprecedented numbers of sales and record prices that came to a crashing halt with the recession of the early part of this decade ? are back.
According to the broker Dirks, Van Essen & Associates, daily newspaper transactions last year amounted to $3 billion, with 88 titles changing hands. It was the most active year since 1986, when 87 properties worth $3 billion were bought and sold.
"The activity is there," said Kevin M. Lavalla, managing director of the investment bank Veronis, Suhler & Associates Inc. "There are a lot of sales taking place, and values are high again."
Veronis, Suhler reported that the value of the average newspaper transaction in 1995 was $153.1 million, up from 1994's $60.4 million and higher than any time so far this decade. The only other year deals exceeded $100 million was 1993, which saw several major debt offerings and private placements and the New York Times Co.'s $1 billion purchase of the Boston Globe ? to date, the biggest single acquisition of the '90s.

High times in the '80s
The newspaper business enjoyed some extremely profitable times following the recession of the early '80s, and everyone ? from big, established chains to brash newcomers ? wanted in the acquisition game. As the demand for properties grew, prices soared to mind-boggling levels.
Many investors back then overpaid. Take Ralph Ingersoll II, who laid out what most considered to be a ludicrous amount ? somewhere between $125 million and $150 million, according to reports ? for the 70,000-circulation Morristown, N.J., Daily Record.
Mavericks the likes of Ingersoll ? who used a popular financing tool of the '80s, junk bonds, to buy newspapers ? have largely disappeared from the scene.
In the peak year of 1986, with values up and a punishing capital gains tax change slated for the following January, many family owners cashed in. Financial institutions and other entrepreneurs, who knew little about newspapering but were eager to get into the business, willingly paid top dollar for the privilege. Families, in cases such as the Louisville Courier-Journal and Des Moines Register, sold to chains, as well.

Slowdown in the '90s
Then came the economic slump of the early '90s, which forced down advertising income and caused newspaper revenues to fall instead of rise for the first time in modern history.
Suddenly, newspapers weren't so sexy anymore. Deals dried up. Closures supplanted takeovers. In 1991, only 35 dailies valued at $315 million got new owners.
The industry would recover along with the economy, only to be sacked by rising expenses ? including historic newsprint increases ? and accelerated consolidations among retail businesses. But publishers fought back by instituting strict cost-cutting measures ? in some cases, firing thousands of people and even shutting down newspapers. Employing the lean-and-mean tactic, newspapers reduced their cost structures and helped push values higher.

Signs of life
After lagging behind the market for years, public newspaper stocks are showing "renewed signs of life," said a report by the investment bank Alex. Brown & Sons Inc., which noted that through last February, newspaper share prices were up a strong 6.9%, ahead of the S&P 500's 3.9% gain. (The table on page 107 shows nearly all stock prices improved over a year ago.)
The Internet? Cable TV? Defying all odds in this electronic era, newspapers ? with their strong market franchises, remarkable profit margins and healthy cash flow ? are hot investments once again.
Last year brought some of the biggest newspaper deals ever. The granddaddies were Walt Disney Co.'s $19 billion merger with Capital Cities/ABC Inc., which involved eight dailies and several dozen weeklies worth $1.1 billion, and Gannett Co.'s $1.7 billion purchase of Multimedia Inc., including 60 daily and weekly papers valued at $540 million.
McClatchy Newspapers Inc. spent $373 million to acquire the News & Observer in Raleigh, N.C., and Knight-Ridder Inc. paid $360 million for Lesher Communications Inc. while reaping $115 million from the Journal of Commerce sale.
Morris Communications Corp. got Stauffer Communications Inc. for $283 million, while Media General Inc. spent $230 million for Worrell Enterprises Inc.
And what tale of high-flying newspaper deals would be complete without a mention of W. Dean Singleton. A major player in the '80s who has continued building his empire in this decade, the Denver Post proprietor last year purchased a handful of New England papers from the Miller family for an undisclosed sum. And Singleton's buying mode carries on, as he got nine newspapers from Hollinger International Inc. just this month. (See story on page 32.)

No go-go
But while acquisitions are on the upswing, insiders are quick to differentiate the wave of the '80s from the current brisk pace.
Whereas a decade ago 75% of the deals involved independent sellers, today newspaper groups account for three-quarters of the transactions, according to Dirks, Van Essen ? hardly surprising, considering the dramatic decline in the number of independently owned newspapers. (See story on page 20.) Of the top-25 U.S. chains, ranked by circulation, only 10 are privately held.
With the buying fury of the '80s came many once-in-a-lifetime opportunities, and buyers snatched up papers seemingly without rhyme or reason. But the chains driving today's acquisitions are making more cautious, strategic moves.
"There's no go-go," Lavalla said of the recent activity. "Everything is very sane. People aren't out there buying a newspaper wherever it is. You have companies making strategic acquisitions according to geography or size. I don't know how many people I've talked to who've said, 'I only want to look at daily newspapers with 50,000 circulation or greater.'"

The trend toward clustering
Christopher Shaw, a founding partner in the newly formed investment firm Sextant Partners who orchestrated some of the biggest newspaper deals in the 1980s as head of Henry Ansbacher Inc., said: "I think the temptation is to take individual circumstances and build them into a trend, but the only fundamental trend you're seeing now is clustering, or buying adjacent properties."
"In the '80s, everybody wanted to buy newspapers, period," Singleton recalled. "You had the groups wanting to get bigger, and financial people with lots of capital available wanting to get into the business. Now, groups are rationalizing what they own."
Singleton's companies publish 93 newspapers in 11 states, including clusters of properties in areas such as Colorado, New England and New Jersey.
"It's better to have five newspapers in one region than five scattered across the country," he explained.
The clustering strategy is also reflected in two of last year's major transactions: Knight-Ridder's purchase of the Lesher papers in California, where the company already owned the San Jose Mercury News, and Richmond-based Media General's acquisition of Worrell, another Virginia chain.
And the Canadian newspaper giant Thomson Corp., which used to purchase properties hither and yon, lately has concentrated on growing its regional bases, such as Ohio.

A monopoly scenario?
With corporate ownership growing and media megamergers in vogue, some wonder whether the American press of tomorrow will look like Canada, where a few giants ? Thomson, Hollinger, Southam ? control most of the daily circulation.
While allowing that there may well be another deal the magnitude of the Gannett-Multimedia marriage, Lavalla doesn't see a scenario in which two or three major players dominate U.S. newspaper publishing.
"There are too many financially strong public newspaper companies," he said. "I think there's always going to be a New York Times Co., there's always going to be a Tribune Co., there's always going to be a Times Mirror."
Shaw offered that, while another merger ? perhaps even one among two of the 10 largest newspaper companies ? might be down the pike, such predictions are tantamount to crystal-ball gazing.
At any rate, observers expect the lively newspaper acquisition climate to continue ? at least for a while.
"I don't see anything right now that says it'll slow down," Lavalla said, noting that the economy and interest rates are stable.
Others are also optimistic. The investment bank AdMedia Corporate Advisors Inc., in a recent survey
$3 billion in newspaper deals in 1995 has some wondering whether the
buying spree of a decade ago is making a comeback
"There's no go-go. Everything is very sane. People aren't out there buying a newspaper wherever it is. You have
companies making strategic acquisitions according to
geography or size."

of more than 700 ranking media and financial executives, found that despite rising prices, most respondents anticipated increased newspaper merger-and-acquisition activity in the coming months.
Fifty-six percent expected deals this year to top 1995's heroic volume. By comparison, only a third of those polled last year expected the number of M&As to grow.
"There's an overwhelming recognition that current conditions ? high multiples and plenty of available funds ? are ideal for sellers," said AdMedia president Robert Garrett.
But while deals may continue to be plentiful and more mammoth mergers may be in the making, not all companies ? as Shaw recently discovered ? are jumping on the M&A bandwagon.
His Sextant Partners recently approached Journal Communications Inc., publisher of the Milwaukee Journal Sentinel, with a $1 billion offer, made by another media company acting anonymously through the broker.
But executives at Journal Communications refused to even consider the proposal, insisting their company, 90% of which is employee-owned, was not for sale.
Robert A. Kahlor, chairman and CEO, told the Associated Press: "The founders of the employee-ownership program in 1937 made clear their intention that the newspaper was to remain independent and employee-owned forever."
David G. Meissner ? who represents the Grant family, which controls 10% of the company's stock ? was more blunt, commenting: "We are unanimous. We will not sell. We will fight if we have to. We have no intention of selling."
But Shaw remained hopeful that the Journal Sentinel would be the next big newspaper acquisition story of the '90s.
Encouraging employee owners to buck management's wishes and come to the table, he insisted there was "nothing hostile or unfriendly in what we are trying to do."
The hospitable takeover. Welcome to the '90s.
We need to
tell people that the newspaper saves them time by being in
the places they can't be
Ward has worked at several newspapers, most recently as a copy editor at the Philadelphia Inquirer. This article is based on research he did for his doctoral dissertation at the University of Maryland. While at the university, he was New York Times managing editor Gene Robert's assistant for three years.
?( There's no go-go. Everything is very sane. People aren't out there buying a newspaper wherever it is. You have companies making strategic acquisition according to geography or size) [Caption[
?(-Kevin M. Lavalla, managing director of the investment bank Veronis, Suhler & Associates Inc.) [Photo & Caption]
?(I think the temptation is to take individual circumstaces and build them into a trend, but the only fundamental trend you're seeing now is clustering, or buying adjacent properties." ) [Caption]
?(Christopher Shaw, founding partner in the newly formed investment firm Sextant Partners who orchestrated some of the biggest newspaper deals in the 1980s as head of Henry Ansbacher Inc.) [Photo & Caption]