03-30-02 | Printable Version

1st Quarter 2002

Lee, CNHI Lead Industry Out of M&A Slump

Two Companies Near Top 10 in Circulation Following Big First Quarter Deals

Two sizable transactions in the first quarter of 2002 provided a jump-start to merger-and-acquisition activity in the newspaper industry, with deal volume in the first three months of the year far exceeding totals for all of last year.

All of the deals announced in the first quarter offer solid evidence that newspaper values have held up remarkably well despite one of the worst advertising recessions for the industry since World War II. This is in sharp contrast to some other media, such as broadcast television, which have seen multiples erode over the past 18 months.

In addition, these acquisitions demonstrate the overall financial health of the industry, particularly among the mid-sized newspaper companies that were responsible for the bulk of the activity in the quarter. Even on the heels of a very difficult operating year for newspapers, these companies have ample capacity for making significant acquisitions.

Volume Surges

In total, some 25 daily newspapers were involved in six transactions in the first quarter, with aggregate deal value of nearly $1.0 billion. This compares with just 22 daily newspapers changing hands all of last year with total transactional value of $209 million — the lowest volume for the industry in 25 years. Dirks, Van Essen & Murray represented the sellers in five of the six daily transactions announced in the first quarter.

The largest transaction of the quarter, indeed the largest in the industry since mid-2000, was Lee Enterprises’ agreement to acquire privately held Howard Publications in a deal valued at $694 million. The acquisition, which involved 16 daily newspapers, closed April 1. Lee announced an additional deal to acquire a strategic daily in the quarter as well.

The Lee-Howard deal was followed closely by Ottaway Newspapers’ decision to sell four daily newspapers to Community Newspaper Holdings, Inc.

The acquisitions by Lee and CNHI vaulted the two companies to 11th and 12th respectively on the list of newspaper companies ranked by total daily circulation owned. Both are now within striking distance of the Top 10.

Multiples Strong

The acquisition price for Howard Publications represented 14.1 times 2001 earnings before interest, taxes, depreciation, and amortization (EBITDA) and 3.3 times 2001 revenue. Lee estimated that the price would represent 11.5 times EBITDA for the first full fiscal year under Lee’s ownership, after integration and synergies.

CNHI’s acquisition of the four dailies from Ottaway for $182 million represented 12.2 times 2001 EBITDA and approximately 15 times operating earnings, according to press releases from both companies.

These multiples are as strong as those commanded by high-quality daily newspapers at the height of the market in 2000. Other dailies changing hands in the first quarter, whose prices and multiples were not publicly disclosed, also traded at healthy multiples.

The story is quite different in broadcast television. Multiples for smaller market broadcast television properties have fallen to approximately eight times cash flow, while larger markets are trading for approximately 10 times cash flow, according to BIA Financial Network, one of the leading merchant banking and strategic advisory firms in the electronic media industries.

This is due to a number of factors, including a dearth of well-financed buyers. Most broadcast companies, following a difficult economic year, now have too much leverage to finance additional acquisitions. BIA expects restrictions on newspapers owning television and radio in their own markets to be lifted later this year, creating opportunities for newspaper companies to make strategic electronic media acquisitions at depressed prices.

Private Companies Strike

Lee Enterprises was the only publicly traded newspaper company to make a significant acquisition in the first quarter. All of the other major deals were made by privately held newspaper concerns, many of them making their first daily acquisitions in several years.

Companies in this category included Sandusky Newspapers, Inc., of Ohio and United Communications Corp. of Kenosha, Wisconsin.

As we pointed out during the record-breaking acquisition year in 2000, and at the end of a relatively slow year in 2001, substantial buying capacity remains in the industry. There were simply no opportunities in 2001. The balance sheets of both the publicly traded and privately held companies are very strong, providing plenty of room for additional leverage to finance acquisitions.

Lee Gets Busy

In addition to its agreement to buy the stock of Howard Publications, Lee Enterprises, through its Madison Newspapers Inc., partnership, agreed to acquire the Beaver Dam (WI) Daily Citizen and a number of complementary publications. The Beaver Dam group expands the reach of the company’s Madison cluster, which grew in 2000 with the addition of dailies in Portage and Baraboo and a number of weekly newspapers and shoppers located along Interstate 90/94 in south-central Wisconsin, known as Central Wisconsin Newspapers (see map above).

The Beaver Dam acquisition from Conley Publishing Group includes the Daily Citizen, with circulation 10,250 daily and 12,500 on Saturdays; two weekly newspapers; and several shoppers serving communities around Beaver Dam. With the addition of these newspapers, Madison Newspapers will have integrated products and publications that reach about 1 million people in a 17-county area.

The Conley Group will continue to publish daily newspapers in Waukesha and West Bend, Wisconsin; other publications in southwest Wisconsin; and magazines in Tucson and Denver. In addition, Conley will keep its printing operation and corporate activities in Beaver Dam, where the company is the city’s largest employer.

CNHI Lands Four

CNHI continues to add larger daily newspapers to its portfolio with the addition of the four Ottaway Newspapers — the Joplin (MO) Globe, circulation 32,300 daily and nearly 40,000 on Sunday; the Mankato (MN) Free Press, circulation 24,250 daily; the Sharon (PA) Herald, circulation 21,200 daily and 22,800 Sunday; and the Ashland (KY) Daily Independent, circulation 20,650 daily and 23,100 Sunday.

Since the end of 1999, the average circulation of daily newspapers owned by CNHI has increased from approximately 8,500 to 10,400.

Two of the Ottaway dailies, Sharon and Ashland, will become anchors in CNHI clusters. Sharon will serve as centerpiece for a western Pennsylvania cluster that includes dailies in New Castle, Meadville, and Titusville. Ashland will join dailies in Gallipolis, Pomeroy, and Portsmouth, Ohio, and Point Pleasant, West Virginia, as well a group of weeklies in western Kentucky, to create a sizable marketing group in the Ohio River Valley.

Sandusky in TN

Sandusky Newspapers, Inc., made its first significant daily newspaper acquisition since 1993 when it agreed to buy Press Holding Corp., a family-owned group of seven newspapers based in Tennessee. The flagship of Press Holding Corp., owned by the Carl A. Jones family, is the 30,400-circulation Johnson City Press, located in the Tri-Cities area of east Tennessee adjacent to Sandusky’s 43,000-circulation Kingsport (TN) Times-News. Johnson City and Kingsport represent two legs of the Tri-Cities area; Bristol, on the Virginia-Tennessee border, is the third.

The deal also brings to Sandusky three weekly newspapers operating around Johnson City; the 8,950-circulation daily Lebanon Democrat and adjacent weekly in the Nashville area; and two weeklies in western Tennessee, including the 7,700-circulation Covington Leader.

In announcing the acquisition, Sandusky chairman and president David A. Rau said, “We are honored and feel fortunate that the Jones family has chosen to entrust the Press and all their family newspapers to Sandusky. We’re a family-owned company, too, and perhaps our strong values about the importance of community journalism had some part in their decision, which we know was a difficult one.”

In addition to the Kingsport Times-News, Sandusky owns daily newspapers in Sandusky and Norwalk, Ohio; Grand Haven, Michigan; and Ogden, Utah. It also owns five radio stations in Seattle and five in Phoenix.

The Press Holding Corp. properties are known as the Carl A. Jones Newspapers. The late Carl A. Jones founded the Johnson City Press in 1934 and acquired the other newspapers during his career. Since his death in 1992, his children, Timothy P. Jones, Carleton A. Jones, III, John A. Jones, and Alice Jones Torbett, have operated the newspapers.

Howard Brown Buys Daily

Howard J. Brown’s United Communications bought the Watertown (SD) Public Opinion in February, marking the first daily acquisition for the company since 1972. The company owns two other daily newspapers -- Kenosha (WI) News and the Attleboro (MA) Sun Chronicle -- in addition to a number of non-daily publications and two television stations .

Rust Cleans up Market

Rust Communications of Cape Girardeau, Missouri purchased the Cherokee (IA) Daily Times from CNHI. Rust previously had struck a deal to acquire the competing Chronicle in Cherokee from local owners.

The new merged Cherokee Chronicle Times will be published four days per week, along with a Total Market Coverage vehicle to be published weekly. The Cherokee operation will complement Rust’s daily in neighboring Le Mars, Iowa, and weeklies in Kingsley and Anton/Correctionville nearby.

Rust Communications now owns 14 dailies and 33 weeklies throughout the country. The Cherokee daily was one of several smaller publications that CNHI decided to shed because it did not meet the long-term strategic goals of the company.

Weekly Front

Several weekly newspapers changed hands in the first quarter as well. The largest transaction was 21st Century Newspapers’ acquisition of the Heritage group, which consists of 23 publications in southeastern Michigan.

A company owned principally by newspaper veterans Gary Gerlach and Michael Gartner acquired two weekly newspapers in Jackson County, West Virginia, north of Charleston, from CNHI. The newspapers will be an eastern outpost for New West Newspapers, which also publishes the daily Nebraska City (NE) News-Press; the Syracuse (NE) Journal Democrat; the Penny Press shopper network in Nebraska, Iowa, Kansas, and Missouri; and a group of publications in suburban Denver.

Lee Enterprises sold five of its specialty shopper publications in four separate transactions. The company had identified these publications as non-strategic to its core publishing group.

Journal Register Co. added to its suburban Philadelphia cluster with the acquisition of the News Gleaner Publications’ group of 15 free, non-daily publications and commercial printing operation. The acquisition includes eight weekly newspapers serving communities in northeast Philadelphia. Separately, JRC also acquired the weekly Main Street News, serving several communities in southern Connecticut.

New Hampshire-based Geo. J. Foster Company, Inc., publisher of Foster’s Daily Democrat in Dover and the Citizen in Laconia, bought the Rochester and Dover Times from another New England publisher. The seller, Salmon Press, owned by David Cutler and John Coots, will continue to publish 10 other weeklies in central and northern New Hampshire. Cutler and Coots also are the principal owners of the daily Southbridge (MA) Evening News.

MediaNews acquired the publishing rights to the 1590 Broadcaster, a weekly in Nashua, New Hampshire that had stopped publishing in January. The Broadcaster had circulation of nearly 65,000, serving Nashua, Hudson, Merrimack, Amherst, Bedford, Hollis, Brookline, Litchfield, and Milford.