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Better dead than read, Part Deux

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Dinosaurs and buggy whips came to my mind when I read (self-referentially, in the Boston Globe

Itself) of three bidders for the money-flushing newspaper:

 

An investment firm that recently purchased a San Diego newspaper has emerged as a third bidder for The Boston Globe, according to people briefed on offers submitted to the paper’s owner, The New York Times Co.

 

The suitors have arrived, dowries in hand, despite the parent company’s newly professed indifference to the sale process it had started:

 

In an interview with the Globe this week, Times Co. publisher and chairman Arthur O. Sulzberger Jr. said the company was “exploring’’ a sale of the Globe, but doing so “does not mean that will absolutely be the case.’’

 

Hot_shots_president

President Thomas ‘Tug’ Benson: Every time I give an order, it gets screwed up!

Appoint an ambassador, he leaves the country.

 

Alert blog readers [Nothing but the best readers here! – Ed.] will recall that three months back, in Better dead than read, I speculated that not only the Globe’s sale inevitable, so too is a dramatic change in use, because the land on which the newspaper sits is worth vastly more if used for something else.

 

Valeria_golino_01

Ramada Rodham Hayman: I had to come. It was a sequel.

In other words, a newspaper plant on that site is a negative-value use, for two reasons:

1. In modern cities, well-located urban land is best used for high-density high-end residential, not manufacturing.

2. Newspapers are increasingly intangible and Web-based, not physical.

 

In other words, we have a rising use (residential) crossing with a falling use (manufacturing), and the gap (reuse value minus current value) is widening.  The Globe‘s eviction from its current site is inevitable, and it’s astonishing to me that so few people see it, but then, often we see only what we expect to see.

 

A Man from Mars could see it instantly:

 

Ge_125_morrissey_blvd_w_boston

Look at that location: close to down, on the waterfront, right on the Expressway

 

Boston and the Federal government have completed the Big Dig, the world’s most expensive single construction project, greatly improving transportation into downtown and to the South Shore.  One of my little mental experiments is this: Pretend the contrary, would you do it?  If you were a Man from Mars, would you look at that location and think, Of course, this is the site for a newspaper plant?

 

Zooming a bit closer, what do we see?  Underused land area.

 

Ge_morrissey_complex_close_up

Low-rise, not mid-rise

 

Looks like a campus, doesn’t it? 

 

Throughout the developing world, we face the challenge of slow market eviction, where slum dwellers who occupy well-located land are suffered to squat there so long as the land is legally impaired or environmentally questionable.  When the land or property is improved, market forces move them out: voluntarily, and with transfer or relocation payments, but movement nevertheless.  

 

Hot_shots_part_deux_05

[Dexter is being rescued]
Dexter: You don’t understand. I can’t walk… they’ve tied my shoelaces together.
Topper Harley: A knot. Bastards!

 

That is now happening to the Globe, which is better dead than read?

 

The combined assessed value of that property and the 20 acres of real estate at its printing plant in Billerica is $65 million, according to assessor records in Boston and Billerica. The New York Times Company also could parcel out Boston.com for an estimated $20 million according to estimates from analysts.

 

Globe_logo

If the logo has value, why do we need a physical presence?

 

Compared with the newspaper as a business, the real estate also has multiple other huge advantages as a corporate asset:

 

1. The real estate has minimal holding costs.

 

Shuttering the paper would preserve liquidity at the Times, which faces a debt refinancing crunch in a few years.

 

2. More people are likely to be interested in buying the real estate than in running the newspaper.

 

In an outright sale of the Globe, Barclays Capital analyst Craig Huber estimates the paper would fetch only $113.3 million. But that’s only if the paper can find a buyer. He uses a multiple of 0.3 on an estimated 2009 Globe revenue of $377.8 million. In years past it was not uncommon to see major newspaper companies sell for 2 to 3.5 times revenue.

 

Note that the multiple-of-gross-revenue model presupposes profitability is more or less constant regardless of sales. The tenfold drop in pricing (from 3.5x sales to 0.3x sales) reflects the imploding business model.

 

Kingdome_imploding

Undone by economic obsolescence and over-reliance on physical structures

 

3. Cash flow immediately improves, yielding capital for more critical businesses … like the Times

 

“While closing down the Globe won’t be a popular decision from a local perspective, improving (cash flow) by $50 million-plus annually could help NYT stock,” said John Janedis, a newspaper analyst at Wachovia Capital Markets LLC.

 

Is shuttering or relocating the Globe what the buyers have in mind? 

 

Hot_shots_deux_08

Topper Harley: I’m not saying I don’t trust you, and I’m not saying I do. But I don’t.

 

Let’s meet the suitors:

 

[1] Platinum Equity, of Beverly Hills, Calif., which bought the San Diego Union-Tribune newspaper in May, made an offer to the Times Co. last week, the sources said.

 

[2] One of the local groups is led by Stephen Pagliuca, co-owner of the Boston Celtics and a private equity executive at Bain Capital, and former advertising executive Jack Connors.

 

[3] The other is led by Stephen E. Taylor, a member of the family that sold the Globe to the Times Co. in 1993 for $1.1 billion.

 

Two private-equity buyers – whose strategy is never buy-and-hold, always buy-transform-and-sell – and one family that’s playing with house money, and may have sentimental reasons for submitting a bid, even  if it’s undecided.

 

Hot_shots_commandos

Harbinger: War …it’s fan-tastic!

 

Platinum’s offer is $35 million, plus the assumption of $59 million in pension liabilities, something the Times Co. asked all potential buyers to include in their bids, the people said.

 

When a property is encumbered by long-term liabilities, the buyer takes it subject to those liabilities.  Thus Platinum’s price is effectively $94 million, which is suspiciously close to our better dead than read $65 million minimum liquidation value of the property:

 

Taylor’s bid is believed to be in a similar range, according to the sources.

 

Hot_shots_joke

 Topper Harley: You’re joking.
Ramada Rodham Hayman: I’m not.

Topper Harley: You’ve got to be.
Ramada Rodham Hayman: If I was joking I would say: “A horse walks into a bar. The bartender says, ‘Why the long face?'”

 

Hot_shot_sheen_take

 

Pagliuca and Connors, who are proposing a model with a nonprofit component, are believed to have offered significantly less.

 

Doubtless they expect the non-profit structure to give them financing or real estate taxation advantages.

 

Hot_shots_deux_08

Topper Harley: These men have taken a supreme vow of celibacy, like their fathers, and their fathers before them…

 

Meanwhile, the original business model is extinct – it just doesn’t know that yet.

 

The SEC filing also said the Globe and the T&G have been hurt by the forces pummeling traditional media companies, including the migration of readers and advertisers to the Internet and a deep recession.

 

Hot_shots_poke

Thank you, Topper. I can kill again! You’ve given me a reason to live.

 

But the papers have also put in place strategic financial turnaround plans. The Globe, for instance, has:

 

[1] Shuttered its Billerica printing plant

[2] Raised subscription prices

[3] Reduced costs, including getting $20 million in union concessions.

 

For the Globe, here’s the self-evident end state: it becomes a regional outlet of the New York Times.  Once upon a time, we had a First National Bank of Boston, which became Bank of Boston, which became Fleet Boston, which became Bank of America. 

 

Fnbb_face_plate

Founded in 1784, consolidated 2004

 

As value goes intangible, operating platforms consolidate and businesses distribute their functions across electronic networks.

 

It is unclear how low a bid the Times Co. is willing to accept.

 

In a separate development in the news industry yesterday, Cox Media Group said it was taking the Austin American-Statesman off the market, after receiving bids it considered to be too low, according to published reports.

 

Warren Buffett has said that he would not buy any newspaper at any price; he thinks the business model is entirely broken, and permanently so.

 

Platinum, run by billionaire Tom Gores, is best known for buying distressed businesses, largely in technology.  Three days after buying the San Diego Union Tribune, Platinum laid off 18% of the staff, or 192 positions.

 

Nor does such a move preclude further layoffs.  Private equity does not like to throw good money after bad.

 

Hot_shots_go_in_get

Michelle Huddleson: Now we have to go in to get the men who went in to get the men who went in to get the men.

 

“What’s important here is that the Globe be maintained as a viable business entity, whether it’s sold or we continue to operate it, and make sure that it has the financial stability to ensure its continuity,’’ said [Times Co. publisher and chairman Arthur O. Sulzberger]. “We’re committed to that.’’

 

Pinch_sulzberger

“We’re committed to that.”

 

You may be, Mr. Sulzberger, but neither what you say nor what you believe will bind any buyer.  That’s just a lullaby for the employees.  Meanwhile, the Globe may be applying a neck tourniquet to itself: the Globe may start charging for its online content.

 

Hot_shots_2_15_sheen

Loved you in Wall Street!


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