Irving Kahn is the oldest living investment professional in the world. He is currently around 108 years old and still come to the office every day to make investment decisions. In the second quarter 2013, he added more stocks in his existing position in The New York Times Company (NYT). As of June 2013, he held nearly 5.4 million shares in The New York Times. Let's take a look to see whether or not we should follow Irving Kahn in these two positions.
Raising traditional publication price and growing digital business
The New York Times, with a long operating history dated back to 1896, is a global leader in multimedia news and information. It operates several businesses including newspapers, digital and investments. The New York Times has two main revenue sources: Advertising and Circulation. In 2012, while the advertising revenue decreased by 6%, its circulation revenue experienced a 10.4% year-over-year growth.
The growth in circulation revenue was mainly due to the digital subscriptions growth and the increase in print circulation prices. I personally found this fact fascinating. While it concentrates its efforts on growing its digital business, simultaneously, it raised the circulation prices of the traditional print newspapers. Charlie Munger has once said that he thought The New York Times would make pretty good money, but not a whole lot of money. The reason for its profitability is its decent niche, so that people is ready to pay as much as $4 - $5 for The New York Times newspaper at the airport.
Divestment of The Boston Globe
What investors might focus on is its potential growth after selling The Boston Globe. The divestment of The Boston Globe would help the company get out of the declining advertising business, so that The New York Times could focus on its core business. Actually, the acquisition of The Boston Globe was a mistake. The total cost was as much as $1.1 billion in 1993. The company has eliminated a lot of equity by buying a newspaper that was losing money. Recently, John W Henry, the owner of Boston Red Sox and Liverpool FC, agreed to buy The Boston Globe for a mere $70 million. With the divestment of The Boston Globe, it could focus its entire energy in expanding its growing digital business. The New York Times is trading at $12 per share, with the total market cap of around $1.80 billion. The market values The New York Times at around 6.23 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization).
Gannett and Tribune is a long-term buy with TV business acquisitions
It seems to be an industry trend that the publishing companies are trying to get out of the publishing business. At the same time, it concentrates on growing the digital and broadcasting businesses. One of The New York Times' peers, Gannett (GCI) also recently expanded its business footprint in the broadcasting business, by acquiring Belo for the total transaction value of around $1.5 billion. Belo is one of the largest TV companies in the U.S., operating around 20 TV stations, with the coverage of 14% of the total U.S. TV households. At the offering price of $13.75 per share, Belo is valued at around 7 times its trailing EBITDA.
The acquisition has helped Gannett to double the company's broadcast assets with more scale and diversity. The deal makes Gannett the fourth biggest of the major network affiliates in the U.S.
I personally think that it was a great strategic move for Gannett to tap into the growing broadcasting business. Before the acquisition, around 70% of its total revenue derived from the publishing segment, while only 17%, or $906 million, were generated from the broadcasting segment. However, the broadcasting business was the biggest profit contributor with around $444 million in operating income in 2012.
In the near future, Gannett's operating results will improve, with around $175 million in potential annual run-rate synergies, which could happen within three years. The potential synergies come from higher retransmission fees with the pay-TV providers and cost savings. The deal is expected to generate a lot of free cash flow and accretive to EPS by $0.50 in the first year. Shareholders of Gannett should cheer up because the pro-forma EBITDA multiple is low, at around 5.4. Indeed, Gannett could deliver substantial growth to its shareholders in the future.
Another publishing company, Tribune (OTCPK:TRBAA) also acquired Local TV Holdings to possess an additional 19 TV stations in 16 markets. As most of Local TV Holdings' TV stations are new and has the number one or number two positions in their markets. The pro-forma revenue could be around $3.5 billion while the pro-forma EBITDA might be around $1.1 billion. After the deal, Tribune becomes the country's largest TV station owner with 42 stations in the U.S. Including the potential run-rate synergies, the valuation is around 7 times its EBITDA. I expect that with the acquisition,Tribune is doing the right thing, delivering investors growing operating performance in the future.
The divestment of the loss-making The Boston Globe could enhance the future profitability of The New York Times. With the improvement in profitability, The New York Times could receive a higher valuation on the market. Thus, investors could expect to have the decent return with The New York Times' investment. For Gannett and Tribune, investors could also benefit a lot with the significant business expansion in the growing and cash cow TV business, and the potential deal synergies.