NYT Says Bye to Boston Globe: A Smart Move

by Jonathan Berr | February 25, 2013 8:38 am

The New York Times Co. (NYSE:NYT[1]) is planning to unload The Boston Globe and its other properties in New England — a smart move, even if it means the company will take a gigantic financial hit.

That’s not to say nothing will be lost by unloading the New England Media Group, which includes The Worchester Telegram, several websites and GlobeDirect (the Globe’s direct mail marketing company).

Owning the business probably helps keep newsprint costs in line, for one, because The New York Times can buy it in larger quantities. The publisher also uses its presses in the region to produce the print edition of The Times and can save on office space for bureaus and share content pretty seamlessly. 

There is a chance these benefits could continue under the terms of an acquisition, though. A bigger concern is the hit The New York Times Co. will take on the deal. It will be so big I actually wouldn’t be surprised me if the company decided to hold onto the assets.

The publisher paid $1.3 billion for The Globe’s parent company in 1993 and won’t be able to sell the papers for anywhere close to that price; it shelled over that pile of money at a time when many people thought newspapers would remain masters of the media universe forever. The rise of the Internet put an end to that hubris and now papers are worried about simply staying relevant.

In 2009, the publisher turned down an offer of $29 million plus the assumption of pension liabilities for The Globe and The Telegram & Gazette, a suburban paper, according to a Times story. Absent the pension liabilities, the papers are worth about $150 million. It remains unclear whether the Times is prepared to swallow those costs.

Then again, the market for newspapers has gotten better recently, so that might not be necessary. This time around, NYT has already fielded a $100 million offer, according to MarketWatch[2]. Sales of papers are happening at steep discounts to the stratospheric levels of yesteryear, so some investors are finding the sector too cheap to ignore. Moreover, another group of buyers is emerging: wealthy individuals who want to buy papers out of  a sense of civic pride and ego.

A few years ago Jack Welch and some other local investors expressed an interest in buying The Globe. It will be interesting to see if the former General Electric (NYSE:GE[3]) Chief Executive will try to channel his inner William Randolph Hurst during this go-around. 

Warren Buffett, history’s greatest investor, also took a shine to the sector recently. In 2011, Buffett acquired his hometown paper The Omaha World-Herald for $150 million and the assumption of $50 million in debt. A year later, he acquired 63 papers from Media General for $142 million. The Oracle of Omaha may buy even more papers … though The Globe probably won’t be among them because he tends to prefer papers in midsize cities — such as Buffalo — that have entrenched franchises.

Still, other big city papers, which face loads of competition and unionized workforces, are attracting bidders. A group of local investors agreed to buy the publisher of The Philadelphia Inquirer and The Philadelphia Daily News for $55 million in 2012. Tycoon Rupert Murdoch reportedly is interested in Tribune’s papers including The Los Angeles Times and The Chicago Tribune. He would probably like to buy The Globe, but there isn’t a snowball’s chance that the Sulzbergers — who control The Times — would sell to the conservative billionaire. 

Regardless, the bottom line is that The New York Times Co. could really use the money from the deal, even if it is a huge hit. During the fourth quarter, operating costs rose at 6.3% to $408.5 million, while total revenue rose only 5.2% to $575.8 million. Over the long term, that’s not sustainable. And while owning the New England Media Group isn’t hurting the New York-based publisher, it isn’t helping much either. Revenue was flat last year at $395 million and the business has flat-lined for years.

The New York Times also had more than $697 million in total debt and lease obligations at the end of the year. Debt has been on the decline, though, as the company continues to unload assets that aren’t a part of its core newspaper business, including About.com and some regional papers. If this trend continues, perhaps the company might buy back more stock or reinstate the dividend that was suspended several years ago — both promising possibilities for shareholders.

All in all, saying bye-bye to The Boston Globe seems like a solid path forward for NYT, even if it’s far from perfect.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned securities. Follow himon Twitter@jdberr.

Source URL: https://investorplace.com/2013/02/nyt-says-bye-to-boston-globe-a-smart-move/

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