From coast to coast, the spring scent of newspaper transactions hangs in the air. The big one - Apollo Global Management's (NYSE:APO) purchase of Digital First Media - is nearing completion. Meanwhile, sellers from New York City to southern California test the mettle (and wallets) of would-be buyers.
Expect that the biggest transaction of titles in recent history will be announced by the end of April. Apollo, acting within its exclusivity agreement to buy DFM, is now finishing its due diligence and arranging its financing of the $400 million deal ("Apollo's acquisition of Digital First Media").
In total, millions of readers of U.S. newspapers and sites will see behind-the-home-page changes in who runs - and decides on the future of - their local news. Readers in DFM cities will wonder what Apollo's ownership will mean - but readers of 10 papers in Pennsylvania, Texas, and New Mexico can now know their new owner.
Gannett (NYSE:GCI), I've learned through several confidential sources, will take control of papers in those states, ranging from the York, Pennsylvania papers (circulation about 52,000 on Sunday) to the weekly Ruidoso News (circulation 3,200) in the mountains of New Mexico. One of the DFM's predecessor companies, the MediaNews Group (OTC:MNWG), had put together pooled ownership assets in several parts of the country. The Tex/Mex group (which includes El Paso and the New Mexico papers in Las Cruces/Silver City/Deming, Alamogordo, Farmington, Carlsbad, and Ruidoso) and the Pennsylvania group (York, Lebanon, Hanover, and Chambersburg) will move to full Gannett ownership and management as the Apollo sale finalizes. (Other DFM Pennsylvania properties, including Pottstown, West Chester, Lansdale, and Primos would stay in the Apollo fold.)
Through the transaction, Gannett brings two well-thought-of editors into its fold. El Paso Times editor, Bob Moore, won the Ben Bradlee Award last year. York Daily Record editor, Jim McClure, is well regarded for his digital transformation work.
That will add 10 dailies to Gannett's current roster of 81 regional dailies, plus USA Today. Gannett - which will soon become a standalone newspaper company as the mothership assumes a broadcast identity and new name - will remain the largest U.S. publisher by revenue, and second to New Media Investment Group (GateHouse) in the number of its titles.
To Owen Van Essen, a top broker of newspaper properties and a keen observer of their values, the acquisitions make sense for the new once-again-newspaper-centric Gannett as it moves forward, without debt and able to grow. He offers this observation about the Pennsylvania additions:
Those are good standalone properties. Pennsylvania is a good place to publish newspapers. It has a high household penetration. It's the oldest or second oldest population, and that's where newspapers do best. Newspapers do best in older communities where people have lived for four or five generations, better than they do as you move west. These are brand new places where people's roots aren't as deep and newspapers don't generally do as well.
The Tex/Mex group still turns in profit in the 20 percent-plus range, though the El Paso Times (circulation of 45,000 on Sundays in the U.S.'s 19th-largest city) has been struggling.
Financially, the Gannett acquisitions will amount to about $15 million in annual additional earnings. We can figure the group of papers it's picking up collectively generate about $60 million in annual revenue. That puts the multiple of sale at 4× - fairly common in today's transaction landscape.
As part of the unspooling of the these pooled assets, Stephens Media, which recently sold off the bulk of its newspaper interests to New Media Investment Group, would presumably cash out of the deal; Stephens has been a minor financial partner.
Gannett had no official comment on the impending swap of properties.
The transfer of the newspapers would answer the question raised by a Reuters story on $25 million or so of DFM EBITDA being "excluded" from the sale. The exclusion really represents a settling of ownership interests, pools that had been created between 1997 and 2005 by former MediaNews CEO, Dean Singleton. Singleton served as one of the newspaper industry's earliest proponents of "clustering," or buying up of contiguous properties and sharing business functions. Since the Great Recession, the industry has embraced clustering fully, and added in editorial functions, to both smart effect and sometimes loss of editorial quality and knowledge. (Curiously, the to-be-spun-back-to-Gannett properties still sport a "MediaNews Group" link at the bottom of their homepages, a sign of how cobbled-together the diverse building blocks of Digital First Media - which only became the name of the overall company in December 2013 - are.)
As we point toward the completion of what has become a more complex sale, we know a few more facts about the transaction. Apollo will assume DFM's labor contracts and pension obligations. It's unlikely to assume any ownership of DFM's inherited share in the Detroit Newspaper Partnership. That fraught arrangement will likely be settled separately.
Since last week, Apollo and its advisors have been meeting with management groups in California, Denver, and the Midwest. They're asking deep and wide questions about the enterprises they'll soon own. What do they hope to learn? Greater depth on the financials, and what's working best. Who's most talented - and should be retained or promoted - in management. And the big question: What's in the formula for turnaround, from the quality of local news and sales innovation to the digital product - the latter of which they've already found, appropriately, wanting.
Even as the deal guys at Apollo work to close the DFM deal, they think about southern California ("Newsonomics: Digital First Media's Upcoming Sale Produces Some Surprises"). I've written extensively about the likely roll-up of properties from the Mexico border to northern L.A., and now, we may find the newest wrinkle in that running story.
While Tribune Publishing (TPUB) still appears the likeliest to win San Diego's daily (Tribune in final bidding to buy U-T San Diego"), Apollo is eyeing that map of more than 21 million people as well. As part of the DFM deal, it would take title to DFM's marginally profitable Los Angeles News Group properties. Those newsrooms (in Long Beach, the San Fernando Valley, Pasadena, and San Bernadino) have been hollowed out by DFM cost-cutting, but Apollo will look at how to revive their within-L.A. local franchises. At the same time, it's clear that the Orange County Register, wedged between San Diego and L.A., will be sold as soon as new publisher Rich Mirman sorts out various pension, government, and lien-holder claims.
Put it together, and we may soon see a SoCal rumble: Tribune Publishing, with CEO Jack Griffin and L.A. Times publisher Austin Beutner in its corner, against Apollo's new newspaper operators. SoCal newspaper watchers might have thought the watching couldn't get much better than the storylines spun out of Aaron Kushner's Register ownership, Doug Manchester's U-T ownership, and Sam Zell's slow torture of the L.A. Times (and the rest of Tribune) - but perhaps it can. Apollo vs. TPUB may offer fewer hijinks, but still serious mano-a-mano action.
Then, there's the action 3,000 miles away. Even Mort Zuckerman can't stand the losses of his Daily News (estimated at between $20 million and $30 million last year, on total revenue of around $175 million), and has put up his paper on the block. As I've written, there are few worse propositions than being a single-copy-focused paper in a glutted metro market. The Daily News' daily single-copy sales have declined from 290,000 in Fall 2011 to 168,000 in Fall 2014 - a 42 percent decline over three years ("Single-copy newspaper sales are collapsing, and it's largely a self-inflicted wound").
In New York, we'd expect that any newspaper for sale would attract a motley set of bidders and egos. This one is. On Tuesday, Cablevision (NYSE:CVC) CEO James Dolan put down his marker: a single dollar for the paper for which Zuckerman had paid $36 million for in 1993, outbidding later-convicted felon Conrad Black. Dolan has been joined in the quest by The Hill owner Jimmy Finkelstein and supermarket mogul John Catsimatidis. Expect more buyers to emerge and Dolan's offer to increase.
For those in the newspaper trade, Dolan's interest reminds us of his unusual bundling of Newsday, which he bought from Tribune in 2009 for $650 million, outbidding Rupert Murdoch by $70 million. Dolan saw that the cable and newspaper trades shared the common subscription nature of their businesses. With cable sales beginning to weaken even then, Cablevision has bundled online Newsday access (which, otherwise, is behind a hard paywall) with cable, internet access, and landline service. The idea: Turn the cable "triple-play" into a home run.
How well has it worked? Cablevision attributes the value of the Newsday service to retaining its other services - and it's able to keep pricing them higher. How much value it attributes, and how much is real, we don't know. The overall financials for Newsday we know: Higher profits, struggling revenues, and fewer customers. That sounds remarkably like the newspaper industry.
Would Cablevision's play for the Daily News be a similar one? That's hard to say. Newsday focuses on a core Cablevision market - Long Island. Would Daily News subscriptions - and remember, it's two-to-one single copy to subscription - work in any similar way for Cablevision? Besides, NYDailyNews.com - modeled on DMGT's Mail Online - is a traffic (if not ad revenue) success, churning up more than 25 million monthly page views. That's a budding business of its own, but it doesn't do much to support Cablevision's core.
Financials, though, are only one factor in considering the buying and selling of Big Apple media. Newspapers, despite their diminished status, still offer potent platforms. To get one of those, a buck (plus a heap of work and worry, and still more money) will seem irresistible to several suitors.
Finally, consider this fact about the Daily News, which tells us so much about the rise and fall of the American press. How many papers do you think the paper sold at its circulation height?
At its top - in a New York City with more than a half-dozen competing dailies - the Daily News sold 2.4 million daily and 4.7 million on Sunday. Today? Try 290,000 daily and 369,000 on Sunday.
The year of that record peak: 1947. How many of you were even alive then?