The dean of newspaper demise, Alan Mutter, observes that Cablevision’s Dolans (CVC) are actually paying about 2.5 times as much for Newsday as Rupert Murdoch thought it was worth (logic below) and about the same amount as has been paid in recent years for other disastrous newspaper acquisitions.
So this again begs the question: What on earth are the Dolans thinking?
We were asked this question at a speaking engagement last night, and the best answer we could come up with was “an emotional desire to own the neighbourhood paper.” If anyone has any more intelligent explanations, we’d be eager to hear them.
Cablevision is valuing Newsday at more than twice the amount Rupert Murdoch thought it was worth, according to a side-by-side comparison of the two deals.
While the Cablevision offer for Newsday appears at first to be “only” $70 million more than the $580 million originally offered by News Corp., a proper comparison of the deals has to take into account the considerable benefit that News Corp. would have achieved by consolidating certain operations of the Long Island daily with those of its New York Post.
But Cablevision won’t be able to take advantage of most of the administrative, sales, production and distribution synergies that Mr. Murdoch said would have added an additional $100 million to the annual cash flow of $85 million that industry insiders believe Newsday produces.
If you divide Mr. Murdoch’s $580 million offer by $185 million in enhanced cash flow, he would have bought the paper for a bit more than 3 times its projected future operating margin. When you divide Cablevision’s offer of $650 million by the existing $85 million in cash flow, the cable company would be paying more than 7.6 times Newsday’s earnings.
In other words, Cablevision has agreed to buy Newsday for nearly 2½ times more than the value placed on it by the most daring and sophisticated publisher in the world. Do Charles and James Dolan, the father-son team leading Cablevision, know more about newspaper publishing than Rupert Murdoch?
And before you leave Mr. Mutter, consider his recap of previous disaster newspaper deals:
While it is not easy to make an apples-to-apples comparison among newspapers in different markets, the case of the Minneapolis Star Tribune is instructive, because it, like Newsday, was a free-standing acquisition that was not consolidated with a neighbouring property. (Unlike Newsday, it also was not destined to be partnered with the dominant cable television company in its market, the bold but untested strategy planned by Cablevision.)
The Strib was purchased by a private investment group for 6.5x cash flow in December, 2006, when it was generating almost the same profits (approximately $81.5 million) as Newsday does today. But the deal soured rapidly, with the paper’s sales slipping a reported 14%, operating profits falling by at least a like amount, its bonds trading today for barely 50 cents on the dollar and its investors writing off 75% of their equity.
In the 18 months since the Star Tribune was purchased, the value of newspapers has plunged so much that even the some of most well-regarded publishers in the country have been forced by accounting rules to drastically reduce the book value of their recent acquisitions. Among them:
:: The New York Times Co. wrote off 58% of the combined $1.4 billion it paid to acquire the Boston Globe and its sister papers in New England.
:: Lee Enterprises is planning to write off between a third and a half of the nearly $1.5 billion it paid to acquire Pulitzer Inc. in 2005, according to a statement filed with the Securities and Exchange Commission requesting more time to calculate the exact amount.
And this is only the beginning. See Alan’s Newsosaur for details…