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Why Local Papers Are Failing - It’s the Debt Load



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Mark K. posted over in The Corner on the hard-times facing local newspapers and linked to this piece on RealClearMarkets.com.  An excerpt:

The once mighty St. Louis Post-Dispatch, flagship of Joseph Pulitzer’s publishing fleet, announced in a small online posting December 17 a warning from its company’s accountant that it may no longer be, by the year’s end, a “going concern.” The value of stock in the Post-Dispatch’s publisher, Lee Enterprises, Inc., has dropped by about 97 percent since the beginning of the year. The company has lost more than 65 percent of its market value during the past 30 days alone. Lee Enterprises publishes more than 50 daily newspapers and more than 300 weekly newspapers and specialty publications.

Less than four years ago, Lee Enterprises purchased the entire Pulitzer company, then publishers of 14 daily newspapers, for $1.5 billion in cash. A share of Lee stock then sold for $45; today a share sells for 34 cents. (Note how prescient the Pulitzers were to sell for cash, not for stock.) With the parent company’s market capitalization now only $22 million, what might the Post-Dispatch be worth by itself — $200,000? Maybe $400,000 at most?

Actually, the Post-Dispatch by itself is worth considerably more than $400,000, it’s the parent company, Lee Enterprises, that’s in trouble.  If you look at the balance sheet of Lee Enterprises at the end of their fiscal year in 2007, the company had over $1.3 billion in long term debt and $2.1 billion in total liabilities.  Revenues in 2007 were slightly more than $1 billion.

Now, compare these numbers to the New York Times corporation.  In 2007, the company had long term debt of around $679 million and $2.5 billion in total liabilities.   Revenues, however, were $3.1 billion.

The Times is in bad shape, but it’s not on life support like Lee Enterprises.  What happened is banks/institutions were not only idiotic in their lending to homeowners, but to businesses as well.  The newspaper industry, even with the Internet’s growth, still generates billions in revenues.  Once the debt is removed from the balance sheets of the over-levered publishing companies, either through a bankruptcy court or through default, there are some cash generating operations out there that should do rather well once the economy stabilizes itself.



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