Friday, March 21, 2008

3 Moguls in Talks to Buy Newsday

Published: March 21, 2008

Three of New York’s biggest moguls are in discussions to buy Newsday, the Long Island newspaper, from the Tribune Company, people involved in the sale process said Thursday.

The three interested bidders are Rupert Murdoch, chairman of the News Corporation, owner of The New York Post; Mortimer B. Zuckerman, the real estate developer and publisher who owns The Daily News, The Post’s tabloid rival; and James L. Dolan, whose family controls Cablevision, the cable television operator, these people said.

The sale process, which is described as a soft auction in which investment bankers are approaching a selected number of buyers, involves several possible kinds of deals.

Mr. Murdoch, for example, is considering a deal that would be structured as a joint venture between The Post and Newsday, that would combine the back-office operations of the two papers. None of the people involved in the auction would be identified because of the confidential nature of the talks.

On the seller’s side, Tribune made public its 2007 results Thursday, showing why it is eager to unload assets. The company, which has been controlled by Samuel Zell, the Chicago real estate magnate, since the end of last year, reported a loss of $78.8 million for the fourth quarter, compared with a $239 million profit in the year-earlier quarter. For the full year, it reported a profit of $86.9 million, down from $594 million.

The company’s newspapers, which include The Chicago Tribune, The Los Angeles Times and The Orlando Sentinel, are losing ad revenue even faster than the industry as a whole, in part because of their heavy exposure to the struggling California and Florida real estate markets.

Mr. Zell said last year that he did not intend to part with Tribune Company’s newspapers. But in a series of recent visits to those newspapers, he has made it clear that Tribune’s financial picture was worse than he had anticipated, and could force a change of plans.

Newsday is probably one of Tribune’s more lucrative papers, according to John Morton, a newspaper analyst, because it serves an affluent region near New York City. People involved in the Newsday sale declined to name a price, but Mr. Morton estimated that it could be worth $350 million to $400 million, though he cautioned that it was hard to say because Tribune does not report the performance of individual publications.

“Five years ago, I might have said a billion,” he said, “but it’s been a rough five years in that business.”

Analysts say that Newsday illustrates the paradox Tribune faces: The best way to raise cash to meet short-term demands is to sell the very same properties the company would want to keep in the long run because they generate healthy profits.

The News and The Post are fierce competitors for readers and advertisers in New York City, and the pursuit of Newsday could become a high-stakes battle between Mr. Zuckerman and Mr. Murdoch. Thus, the jockeying for control of Newsday could decide the fates of three of the nation’s largest newspapers, and dominance in Long Island, with nearly three million people.

Last fall, Newsday reported weekday circulation of 387,000, 10th-highest in the country, and the highest for a newspaper serving a suburban area rather than a city. The Daily News had the country’s fifth-highest weekday circulation, with 681,000, and The Post was sixth, at 667,000.

The proposed deal between the News Corporation and Tribune would include a clause in which the News Corporation would eventually purchase Newsday, people involved in the talks said.

(News of Mr. Murdoch’s interest was first reported Thursday on the Web site of Crain’s New York.)

Mr. Zuckerman is also considering a joint venture between The Daily News and Newsday, according to people with knowledge of the auction.

For years it has been clear that New York City could not profitably support two tabloids. The Post has lost money for decades — tens of millions of dollars annually in recent years — but Mr. Murdoch has been willing to subsidize it, while people close to Mr. Zuckerman say The Daily News roughly breaks even.

The Daily News has healthy Sunday circulation — 726,000 last year — which is the most lucrative day of the week for ads. The Post, which did not print on Sundays for many years, still lags far behind in Sunday circulation, at 405,000.

Executives of each paper have long believed that putting the other out of business would provide some competitive breathing room. Owning Newsday would offer Mr. Murdoch a golden opportunity to ratchet up the pressure on The Daily News.

Cablevision, meanwhile, is said to be interested in acquiring Newsday outright. Cablevision, like Newsday, is based in Long Island, where the company also owns a local news station. Representatives for News Corporation, Cablevision and Mr. Zuckerman all declined comment.

A person briefed on Mr. Zuckerman’s plans confirmed that “he definitely intends to bid on it,” but added that no formal process had begun yet. The person was given anonymity because he was not authorized to discuss the matter. Mr. Zuckerman is chairman of Boston Properties, a major commercial real estate firm, and also owns U.S. News & World Report.

No one answered calls late Thursday to the main editorial and trade union at Newsday, Local 406 of the Graphic Communications Conference.

Mr. Murdoch’s interest in Newsday has long attracted speculation. Last year, for example, he considered bidding with a partner for the entirety of Tribune in an effort to establish a joint venture with The Post and Newsday. And in a quarterly earnings call last year Mr. Murdoch discussed his interest in combining the printing operations of The Post and Newsday.

Mr. Murdoch and Mr. Zell have also reportedly discussed a business relationship between Tribune and Dow Jones, which the News Corporation acquired last year for $5.6 billion. According to press reports last month, the two have talked about a deal in which Tribune would print editions of The Wall Street Journal at facilities in Florida and Los Angeles.

A press officer for Tribune declined to comment specifically on Newsday. But in a statement Thursday giving Tribune’s 2007 results, Mr. Zell said, “We have begun a strategic review of certain Tribune assets to determine whether capital can be more effectively redeployed into our core operations or toward reducing our outstanding leverage.”

Mr. Zell said last year that he would sell the Chicago Cubs and the team’s ballpark, Wrigley Field, but no deals have been struck yet. The company’s most pressing problem is the nearly $8 billion it borrowed to go private, raising its total debt load to $12.8 billion.

Analysts estimated last fall that Tribune would have debt service payments of more than $900 million a year. The company’s operating cash flow was $992 million last year and slowing significantly.

Citigroup is handling the Newsday sale.

Andrew Ross Sorkin contributed reporting.

Possible Newsday sale highlights Sam Zell's plight
By MarketWatch
Last update: 12:03 p.m. EDT March 21, 2008

Commentary: Its valuable pedigree has suitors salivating

NEW YORK (MarketWatch) -- Long Island, the sprawling suburban expanse, has over the years spawned Billy Joel, Howard Stern, Amy Fisher and Jerry Seinfeld (and, come to think of it, me). Its story has been chronicled by Newsday for decades. With nary a rival to speak of, it's hard to imagine a media market so dominated by a single newspaper voice for so long.

Yet, Newsday has reportedly been at the top of new Tribune Co. owner Sam Zell's to-sell list. The suitors are said to include News Corp. which owns MarketWatch, the publisher of this report, and Mort Zuckerman, whose properties include the New York Daily News. See full story.

When Zell took control of beaten-down Tribune Co. -- assuming a mountain of debt in the process -- he may have gotten more aggravation than he bargained for.

If Zell decides to sell Newsday -- and everyone believes he will, to raise much-needed cash for the Chicago Tribune and the Los Angeles Times - he'd lose a valuable asset, but it could mean a new path for staid, gray Newsday.

Newsday readers, who live in the shadow of Manhattan, are ready for some pizzazz. The newspaper is serious, and that's commendable, but maybe it has become too dull over the years. And Murdoch and Zuckerman -- whose papers have been locked in a tabloid rivalry -- can agree on one thing: dull is bad.
-- Jon Friedman End of Story

10-K Watch: Tribune: Newsday Numbers; Disposals Planned;Interactive Revs Up 12 Percent

Joseph Weisenthal
Friday, March 21, 2008; 12:54 PM

Privately-held Tribune has filed its 10-K, a day after reports suggested that the company was shopping Newsday. Also yesterday, the company released Q4 numbers showing it had swung to a loss. The filing gives a fuller picture of the challenge ahead for owner Sam Zell, as he copes with a struggling business and a monster debt load:

-- Newsday: Revenue at the Long Island-based paper is in a steady decline. 2007 revenue was $498 million, down from $541 million in 2006 and $574 million in 2007. Note that in addition to the actual Newsday paper, the unit includes a few niche, Long Island-serving magazines, as well as a number of pennysavers in the region. Presumably all of these assets would be included in any sale of the unit.

-- Interactive: The filing makes you do a little bit of legwork to figure out the company's annual interactive revenue.

What they say is that total interactive revs increased by 12 percent or $27 million, by which we can calculate that 2007 interactive revenue came to $252 million, up from $225 million in 2006.

Using another clue, 2005 interactive revenue was $174 million. This means that the rate of interactive growth slowed precipitously year-over year, from 29 percent (05-06) down to the aforementioned 12 percent (06-07). Given that digital growth will be key for Zell, this decline is troubling.

-- Balance sheet: Just to give you a sense of how much leverage is behind this deal. At the end of 2006, Tribune had $3.6 billion worth of long-term debt on its books. At the end of 2007, post-acquisition, that number is up to $11.8 billion. Cash and cash equivalents on hand comes to $233 million, up from $174 million. Note that Zell invested an extra $65 million into the company, upon closing his purchase.

-- Deals: Tribune may make some acquisitions, but it's definitely more interested in divestitures:

" We intend to pursue dispositions of certain assets or businesses or other transactions to enable us to repay a portion of our indebtedness and meet our financial or operating covenants contained in our debt agreements. In addition, we continuously evaluate our businesses and make strategic acquisitions and investments, either individually or with partners, and divestitures as part of our strategic plan."

It also made mention of possible interactive deals, using almost the exact same language as was found in MSO's 10-K earlier this week (must be the preferred legalese at the moment):

"Moreover, competition for certain types of acquisitions is significant, particularly in the Interactive space. Even if successfully negotiated, closed and integrated, certain acquisitions or investments may prove not to advance our business strategy and may fall short of expected return on investment targets."

Tribune Posts $79 Million Loss

LA Business Journal

The parent company of the Los Angeles Times reported a $79 million fourth quarter loss as advertising sales declined across all categories.

The Tribune Co.’s loss, released late Thursday, is in sharp contrast to a profit of $233 million a year earlier.

Revenues for the Chicago-based media giant declined 12 percent to $1.27 billion.

Revenues were down widely, including a 13 percent decline in publishing. Advertising was off 15 percent, led by a 25 percent plunge in classified advertising revenue.

The company also said full-year net income was $55 million, down significantly from $661 million for 2006.

Tribune blamed the declines on lower revenues, higher interest expense and other factors as advertising and circulation continued to decline.

Tribune also said it eliminated 700 jobs during the final quarter.

Tribune Co. went private at the end of last year in an $8.2 billion buyout led by Chicago billionaire Sam Zell, but it still reports its financial figures due to its publicly traded debt.

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