'Sun-Times' Parent Narrows Loss in Q2, as CEO Hints at Going Private

By: Mark Fitzgerald Sun-Times Media Group Inc. (STMG) reported after markets closed Thursday a narrower second-quarter operating loss compared with a year ago -- and suggested it might deregister its nearly valueless stock and go private.

STMG President and CEO Cyrus Freidheim floated the going-private idea in a letter to shareholders released with its second-quarter financial release. The letter was "in lieu of" a conference call with analysts and reporters, Freidheim said.

STMG is still in the midst of exploring strategic alternatives including the sale of the flagship Chicago Sun-Times and some or all of the other approximately 90 papers it publishes in the greater Chicago market. But Freidheim held out little hope that in the current depressed environment for newspapers a sale will be coming any time soon.

"The market for newspaper companies and the credit markets have slowed the process," Freidheim wrote. "Nevertheless, the process is ongoing and we are exploring all options. We will notify you when there is some news to report."

Freidheim said if the company went private or deregistered its stock, corporate costs in 2009 would be reduced by an estimated $10 million.

STMG stock (OTCBB: SUTM) was delisted from the New York Stock Exchange earlier this year for failing to sell above $1 a share for a long period. Minutes before the 4 p.m. EDT close of trading on the Over-The-Counter market, STMG was trading at 35 cents, down 5 cents, or 12.5%. It has traded as low as 26 cents in recent weeks.

"Our corporate costs have been extremely high for a company of our size," he said. "The principal drivers have been the legacy issues from the Conrad Black era and the cost of public ownership." STMG spent millions investigating and litigating the alleged widespread looting of the company, then known as Hollinger International, by former Chairman Black, his estranged right-hand man David Radler and other top executives. Black and three former executives are serving federal prison sentences on their fraud convictions.

Corporate expenses in Q2 2008 $9.6 million compared with $50.1 million a year ago. Much of the decrease comes from adjustments in 2007 of a bad debt expense of $33.7 million related to a loan with an affiliate of Hollinger Inc., the Toronto-based holding company that was part of the web of corporate entities Black used to control what was once a worldwide newspaper empire.

Freidheim said the company is on track to wring out even more than the announced $50 million in costs targeted for this year. He said there are other sources for cash including real estate sales.

For the second quarter of 2008, STMG reported an operating loss of $24 million, compared to an operating loss of $80.6 million for the second quarter of 2007.

STMG's net loss for the second quarter was $37.8 million, or 46 cents per diluted share, against a profit of $528.0 million, or $6.56 per diluted share, in the year-ago period, which included the reversal of accruals for contingent tax liabilities after the company reached a favorable settlement with Canada's federal tax agency over taxes on the sale of certain papers in Canada.

Ad revenue fell 14% to $62.7 million in the quarter.

Classified ad revenue plunged 19%, while retail fell 14%, and national 11%.

Internet ad revenue increased 5%. Online now accounts for 5% of total ad revenue.

Total operating revenue for the quarter fell to $83 million against $94.7 million in the year-ago period.

Second quarter advertising revenue for the Chicago Sun-Times was down 15% from the year before.

STMG said its total operating costs and expenses fell sharply to $107.0 million, compared with $175.4 million for the second quarter of 2007.

Included in the falling costs was a big decline in investigation, litigation, and indemnification expenses to $3.4 million from $25.1 million in 2007.