What's Newcastle (NCT +3.5%) doing buying a newspaper company? The stock reverses an early dive on news of the Local Media acquisition and turns higher following the release of the investor presentation.
Newcastle notes the purchase was made for 3.4x of 2013 EBITDA with an expected levered yield of 25% in year 1 and 30% in year 2. The company also comes with $33M of appraised real estate value - backing that out means the purchase was for 2.5x 2013 EBITDA, with large urban peers trading at 4.0x-5.5x.
NCT is considering the spin off Local Media and GateHouse Media into a new public company, "New Media" (as part of the deal, Newcastle converted its debt holding in GateHouse into a 59% equity stake). New Media intends to pay out a substantial portion of its free-cash flow in the form of a dividend with expected yield of about 20%.
"With industry distress comes buying opportunity ... once trading at 10x EBITDA, we believe we can buy local newspapers and directories at (fractions of that valuation)."
The conference call remains set for 2:30 ET.