OVERVIEW: I believe that the sale of The Tribune Company last week to investor Sam Zell is an unrecognized low-water mark in the newspaper publishing business. In fact, after subtracting the value of the Tribune's non-newspaper properties from the deal, what little value remains indicates that the value of having access to a newspaper's readers is a mind-boggling 70% less than it was a mere seven years ago.
Is it possible that Tribune Company investors are paying the price of many years of relentless misreporting and biased reporting at its newspapers, especially those it acquired when it bought Times Mirror in 2000? While the numbers presented here of necessity involve a fair amount of approximation, it's hard to avoid concluding that the answer is "yes."
A chart of The Tribune Company's stock performance during the past eight years shows that it has clearly been an underperformer:
That big dip you see in the graph above in early 2000 represents the market's initial reaction, noted in this New York TimesSelect tease, to the Tribune's Times Mirror acquisition announcement:
MULTIMEDIA DEAL: THE IMPACT; Investors Overreact to Deal, Analysts Say
March 14, 2000Tribune Co's agreement to buy Times Mirror Co spells bad news for Tribune shareholders; Tribune's stock falls $6.375, more than 17 percent, to $30.8125, its lowest level in more than a year; but some big investors and stock analysts say worries that $6.45 billion deal will hurt Tribune's profits were overdone .....
The stock recovered in the week that followed and restored the size of the deal to the $8 billion level. But it's clear now in hindsight that the "overreactors" were on to something.
The fact is that the Los Angeles Times and the other newspapers acquired in the Times Mirror purchase have dragged down the Tribune Company ever since it acquired them for over $8 billion seven years ago.
Things appeared to go well at first. in June 2001, a bit over one year after the Times Mirror purchase, The Tribune Company's 10K-A report to the SEC stated that the market value of the stock was just under $8.7 billion. Including dividends, this means that investors had achieved a pretty decent low double-digit return after the acquisition.
But by March 2007, having had six more years to take advantage of the Times Mirror's four newspapers it had acquired (The Los Angeles Times, Hartford Courant, The Baltimore Sun, and Long Island's Newsday), the Tribune Company had degraded to the point that it was worth about 6% less, or $8.2 billion, to investor Sam Zell.
Now consider that the Tribune's Chicago Cubs baseball team, which Zell plans to sell, is estimated to be worth about $600 million, up from roughly $250 million in 2001.
Take the Cubs' value out of both 2001 and 2007, and the rest of the company's value went from $8.45 billion ($8.7 billion minus the Cubs' $250 million) to $7.6 billion (Zell's purchase price of $8.2 billion minus the Cubs' $600 million) -- a decline of 10%. Consider inflation during that time, and you're looking at a meltdown in real value of well over 25%.
Next, look at the Tribune's 23 television stations. What if the Chandler family, one of the others who looked at buying the company, are right in their belief, noted here, that those stations are worth $4.2 billion? That would leave the remainder of the company worth only $3.4 billion (the $7.6 billion taking out the Cubs minus the TV stations' $4.2 billion).
The non-newspaper remainder of the Tribune Company includes:
- Superstation WGN.
- Chicago radio powerhouse WGN-AM.
- Tribune Entertainment, which owns 11 syndicated TV shows, the most famous of which are "Family Feud," "South Park," "Soul Train," and "Candid Camera."
- 24-hour news channel Chicagoland Television.
- Six other smaller properties.
It doesn't seem like much of a stretch to assign a value of at least $1 billion to all of these (it could very well be much higher). This leaves a relatively paltry $2.4 billion to spread around to the newspapers, which include:
- The Chicago Tribune
- The four former Times Mirror properties noted above
- The Orlando Sentinel
- Nine other smaller papers.
How paltry is that $2.4 billion?
- The Tribune company paid $8 billion for Times Mirror in 2000. This included "extensive magazine holdings" worth at most $1 billion, leaving $7 billion in value assigned to the then roughly 1.85 million reader circulation of the four Times Mirror newspapers. That's a price per reader, if you will, of about $3,800.
- Even if you assign no value to the company's smaller newspapers, it appears that Sam Zell was just able to pay $2.4 billion to "buy" about 2.3 million readers at the company's six major newspapers. That's a price per reader of about $1,040 -- a decline of over 70% in just seven years.
(Yes, I know that this ignores Sunday readership, but I am confident that if it were considered, the 70%-plus decline in the value of a newspaper reader would still hold. -- Ed.)
Now let's return to the question at the beginning of the post:
Is it possible that Tribune Company investors are paying the price of many years of relentless misreporting and biased reporting at its newspapers, especially those it acquired when it bought Times Mirror in 2000?
In the face of such a steep decline (and even though the Internet and other factors have surely been been partial contributors), how can anyone doubt it?
Cross-posted at BizzyBlog.com.
