May 7, 2021

The valuation of Tribune Publishing and its nine metro newspapers, in play for takeover, continues to be an issue with fresh evidence this week that the company is doing reasonably well financially.

Tribune Publishing reported its first-quarter results Thursday with EBITDA (earnings before interest, taxes, depreciation and amortization) of $25 million. The company also has $250 million in cash on hand, according to the report.

Annualized, those earnings would be $100 million. Four times earnings is a low-end multiple for valuing newspapers or newspaper companies. That would suggest a price of $400 million, or a total valuation of $650 million with the cash added.

Which roughly equals hedge fund Alden Global Capital’s $630 million offer for the company.

However, takeover bids typically are at a premium, the NewsGuild argued in a letter to shareholders filed Wednesday that urged them to reject the offer at a May 21 virtual meeting. Furthermore, a big chain with premium titles like the Chicago Tribune might command a multiple more like five times earnings than four times.

By either standard, Alden would be underpaying.

Tribune Publishing CEO Terry Jimenez took that position when he surprisingly opposed the deal. Breaking with the company’s six other board members, he said that he would not recommend sending the offer to shareholders and would vote no.

Tribune Publishing’s proxy, filed with the Securities and Exchange Commission March 23, explained, “Mr. Jimenez dissent(ed) on the basis of his belief that the price proposed by Alden was inadequate due to his greater optimism about the Company’s future financial performance, and therefore, when comparing Alden’s offer, he considered remaining as a standalone company to be in the best interests of the Company and its stockholders.”

There was more of the same in Thursday’s earnings news release. Jimenez said:

“Our first quarter performance and forward looking guidance provide us the confidence that our key strategies of driving strong digital growth while transforming the expense side of our business is translating into solid performance. … We also believe that the digital investments we have made and continue to make in our digital infrastructure, our data and analytics and digital subscriber teams as well as thoughtful newsroom investments have positioned us for a sustainable and optimistic future.”

(Tribune’s financial adviser, Lazard Frères, has given an opinion that Alden’s offer is a fair one.)

By all accounts, including public comment from several of Jimenez’s predecessors as CEO, the company has been halting in getting its digital act together. That cuts several ways. It has room to grow paid digital subscriptions by a lot. It will nonetheless continue to lag other publicly traded newspaper companies like The New York Times and Gannett on digital. Its owners, new or old, will need to invest heavily in digital infrastructure to catch up.

Maryland investor Stewart Bainum’s continuing effort to put together a coalition of local buyers for the individual papers raises an intriguing alternate question. Might Tribune Publishing be worth more if broken down to its component properties and sold that way?

Bainum had a preliminary deal with Alden late last year to buy The Baltimore Sun for $65 million, an offer one of his advisers described to me as a generous premium. Valuing the other eight is highly conjectural. The company’s books break down revenue, expenses and profit for each. But Bainum and his advisers would be violating a confidentiality agreement to reveal those numbers, even to the potential buyers they are courting.

The Bainum-Alden deal came apart over how much he would pay for “shared services” — the many business and editorial functions now centralized at the company. If the coalition of buyers were to come together, each would face an expensive and time-consuming task in disassembling what has been put together in running the chain.

A third way of reaching a valuation for Tribune Publishing is a simple one and makes the case in favor of Alden’s offer.

A company — like a house — is worth what someone will pay for it. Alden’s $630 million bid was filed Dec. 31. In the four months-plus that have passed no one has yet come forward with a firm higher or comparable bid.

However valuable the journalism and civic function of the newspapers are, the industry is badly out of favor now with investors. Hedge funds like Alden operate as buyers of last resort for companies and assets no one else wants.

Community-minded owners can change that equation but only have days more to do it.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
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