The Journal Register's M&A Misadventures (JRC)

On August 12, 2004, the newspaper chain The Journal Register (NYSE:JRC) purchased another chain, 21st Century Newspapers, which primarily operates in Michigan. The Journal Register paid $415 million in cash for the properties. The entire market capitalization of the Journal Register Company is $430 million.

For 2005, the "Michigan operations" contributed $.02 a share for Q4 and $.05 a share of the full year. Net income per share on a fully diluted basis was $.31 for Q4 05 and $1.12 for the entire year. On the basis of free cash flow, 21st Century contributed $16.9 million or $.40 per diluted share compared to $1.66 for the entire company. So, about a quarter of free cash flow came out of Michigan.

Total revenue for the Journal Register for 2005 was $556.7 million up from $469.1 in 2004. Operating income rose from $106.1 to $117.0 million and EBITDA rose from $122.4 to $136.2 million. The Journal Register's results show 12 months of the 21st Century operation in 2005 and four months in 2004 due to the purchase date being in August of that year.

Of the Journal Register's increase in revenue for 2005, the company says that $59.5 million came from "revenues associated with the company's acquisitions". Looking at 2003, 2004, and 2005 revenue and operating income and factoring in the 21st Century numbers for four months in 2004 and 12 months in 2005, it appears likely that the 21st Century operations have revenue that is fairly modest compared to the total revenue of the company. The company said the EBITDA margin on these properties was 20%. The entire company's margin was 24.5% and has been dropping for several years.

The Journal Register paid an amount almost equal to its entire current cap to buy 21st Century. The company now has debt of $748, due in large part to purchasing 21st Century.

Pretty bad deal.

JRC 2-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].