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How Will Asset Sale Affect AHC And MNI?

Sep. 08, 2014 12:10 PM ETCGI
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Newspaper and publishing companies, A. H. Belo Corporation (NYSE: AHC) and The McClatchy Company (NYSE: MNI), recently made headlines by announcing the sale of their stakes in Classified Ventures, which owns prominent car search portal Cars.com among others. By acquiring the rest of Classified Ventures for $1.8 million, Gannett Co. Inc. (NYSE: GCI) has gained a stronger foothold in the digital marketplace, but it is certainly a huge relief to the companies selling out.

Shares of Texas-based A. H. Belo Corporation opened up following the announcement of the divestment. The company owns and operates three metropolitan daily newspapers and several associated web sites. As with the wider industry, traditional publishing and advertisement revenues for the newspaper has been on a downhill. This was highlighted in the flat operating revenue performance for the second quarter, while the top line actually declined for the six month period. Although profits zoomed, it was on account of the divestment of Apartments.com by Classified Ventures.

The full impact of A. H. Belo's divestment of Cars.com will be seen in the third quarter only and it could cause a big shift in the company's strategy. The company's debt free balance sheet is another factor that can help it in a complete recast of corporate strategy. At a forward price earnings ratio of 10 and an annualized dividend yield of 2.8 percent, the stock is very attractive and it will be interesting to see what steps the company undertakes to make use of the funds.

The McClatchy Company (NYSE: MNI) is another company which recently recorded profit as Classified Ventures sold Apartments.com for $585 million. Before the divestment, McClatchy owned just below 26 percent of Classified Ventures. Beyond this, McClatchy has been steadily working on disposing its loss making media assets, and recorded a loss of $1.7 million on account of selling the Anchorage Daily News newspaper during the most recent quarter.

The company's top line has also been steadily declining, reflecting the fundamental weakness in the newspaper business. The company also has a highly leveraged balance sheet which included a debt of $1.5 billion at the end of the second quarter. Most of the proceeds from these asset sales are expected to go towards bringing down the company's debt levels, which puts it at a slight disadvantage. However, it will be a huge positive for McClatchy which has made no bones about the plan for a digital transformation of its business. This transformation is already showing encouraging results, with a 13.8 percent jump in digital revenues during the latest quarter.

Analyst's Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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