Monday, August 25, 2008
Cox's sales beg query: Is AJC next?
Industry observers say now is not the time for Cox family to sell flagship newspaper
By Andy Peters, Staff Reporter
With the newspaper industry circling the drain and Cox Enterprises Inc. having placed “For Sale” signs on most of its 43 newspapers, might the Atlanta Journal-Constitution soon be owned by someone other than the Cox family?An additional factor is the generational change under way in the Cox family that controls the AJC. Anne Cox Chambers is 88 years old. Her sister, Barbara Cox Anthony, passed away in May 2007. The AJC is owned by trusts of which Anne Cox Chambers and other family members, including the children of Barbara Cox Anthony, are beneficiaries.Still, in spite of these factors, several corporate attorneys and newspaper industry observers say it's highly unlikely the Cox family will soon end its control of Atlanta's daily newspaper.“I don't see the AJC being sold right now,” said Locke Lord Bissell & Liddell partner Neil H. Dickson, who has advised broadcast companies on mergers and acquisitions.Whether Anne Cox Chambers and the descendants of Barbara Cox Anthony would want to sell the AJC is unknown. A Cox Enterprises spokesman declined to say if the company would consider selling the AJC.“Cox has begun strategic realignments at the Atlanta Journal-Constitution and has made the decision to proceed with those efforts, which we feel will yield positive results,” said Cox spokesman Bob Jimenez. “That said, Cox continually reviews its portfolio of assets and makes decisions that best position the company for continued success.”The Atlanta Journal was purchased in 1939 by James M. Cox, a former newspaper reporter who acquired the Dayton Evening News (now the Dayton Daily News) in 1898, served as governor of Ohio and was the Democratic presidential candidate in 1920. Anne Cox Chambers and Barbara Cox Anthony are two of Cox's daughters. Cox Enterprises, founded later, bought The Atlanta Constitution in 1950. The two papers merged in 2001.Although the AJC is Cox's flagship newspaper, newspaper sales make up only a minority of Cox Enterprises' total revenue. Cox gets about 20 percent of its annual $15 billion in revenue from newspapers, television stations like WSB in Atlanta and radio stations, according to The Deal, a trade publication. Most of Cox's sales come from its cable-television business, Cox Communications, and from Manheim, an automobile auction company. As a privately held company, Cox doesn't release details of its finances.A number of factors seem to create a scenario in which the Cox family might consider unloading its flagship newspaper. First, Cox Enterprises announced Aug. 13 that it will sell 29 publications, including daily papers such as the Austin American-Statesman in Texas, and small weekly papers such as the Times-Leader in Ayden-Grifton, N.C. Cox Enterprises will keep only the AJC, the Palm Beach Post of Florida and the Dayton Daily News and affiliated papers. Cox said it's selling the papers to pay down debt. Cox hired investment bank Citigroup Inc. to seek buyers for the papers. Cox hasn't said if it would only sell the newspapers as a group, or if it would consider offers for individual papers. Cox hired longtime outside counsel Dow Lohnes for corporate legal work on the sale.Cox also said this month that it's selling direct-mail advertising company Valpak. Cox hired Goldman Sachs Group Inc. to run the auction for Valpak. Citigroup and Goldman Sachs are compiling information about the properties and expect to share the book with potential buyers as early as next month.Another factor is that the U.S. newspaper industry is struggling through some of the worst financial turmoil in its history as papers hemorrhage advertising revenue and readers. Large metropolitan daily papers, such as the AJC, have been hit hardest. To cope, newspaper companies have been pouring millions of dollars into expanding their Internet news operations. Publishers have also been acquiring online technology companies. Cox Enterprises in April acquired Adify Corp., a Silicon Valley company that operates an online ad network, for $300 million. Still, the shift to online advertising hasn't produced enough revenue to offset steep declines in revenue from print ads.“We're having great success in moving reader eyeballs from print to online,” said University of Georgia journalism professor Conrad Fink, who studies the management of newspaper companies. “The advertising dollars are not following in commensurate volume.”Like many other U.S. papers, the AJC has tried to cope with its losses in revenue by significantly downsizing its operations in its newsrooms, press plants and other departments. Most recently, the AJC this month offered buyouts to more than 70 journalists. That followed the buyouts of about 80 newsroom employees last year.Many other U.S. newspapers have implemented similar cost-cutting measures. Gannett Co., publisher of USA Today and other papers, said this month it would eliminate 1,000 jobs from its newspaper division, or about 3 percent of its work force. Other papers that have announced newsroom buyouts this year include The Buffalo News and The Charlotte Observer.Newspapers' hard times have led to a whirlwind of M&A activity in the publishing industry. Some of the biggest American newspapers have been sold in the past three years, including The Wall Street Journal and the Chicago Tribune. One large metro paper, Newsday of Long Island, N.Y., has been sold twice in less than two years.But these newspaper industry deals haven't been smashing successes. Since McClatchy Co. bought Knight-Ridder for $6 billion in 2006, McClatchy stock has collapsed. On Wednesday, McClatchy stock hit a record low after it reported a 19 percent drop in July advertising. McClatchy stock closed at $3.58 per share Friday in New York Stock Exchange trading. That's down from $22 per share a year ago. Other newspaper companies have struggled, too, because of concern about double-digit declines in classified-advertising revenue and revenue from national advertisers. Shares of Gannett, the largest newspaper company, on Wednesday dropped $1.25, or 6.7 percent, to $17.40, its biggest one-day drop since Sept. 20, 2001, when the shares fell 8.1 percent, according to Bloomberg News.Because of the steep drops in advertising revenue, a newspaper owner is unlikely to get full value for its asset in a sale, said Baker, Donelson, Bearman, Caldwell & Berkowitz corporate partner Daniel H. Kolber.“This is a very bad time to sell a newspaper company,” Kolber said. “The environment for the newspaper industry is so toxic.”Cox likely is selling its smaller papers because local publications are better weathering the current economic environment, Locke Lord's Dickson said.“Smaller papers have less competition for ad dollars from radio and television, so they're getting higher multiples,” Dickson said. “If you're looking for liquidity, Cox's move to sell its smaller papers is a good strategic move.”While smaller papers might attract some interest in an auction, if Cox were to put the AJC on the block right now, it's unlikely that another newspaper publisher would buy it, Fink said.“I think there is almost no chance of a major media company buying the AJC,” Fink said. “Most acquisition executives in the business now feel that the metropolitan American newspaper is the most vulnerable of all the types of newspapers that we have.”But a so-called financial buyer is another matter, said McKenna Long & Aldridge corporate partner Wayne N. Bradley. A financial buyer, such as a private equity fund, would have different goals than a media company and thus might find the AJC's cash flow appealing, he said. “There are very few industries private equity wouldn't look at,” Bradley said. Bradley declined to specifically discuss the AJC or Cox. “Even though newspapers aren't a growth industry and they might be shrinking, there is still cash flow there. Private equity might believe they could get a return on newspapers.”It's also possible that if the newspaper industry were to experience any signs of a modest turnaround, a newspaper like the AJC could be attractive to a wealthy individual, UGA's Fink said. When Tribune Co. put its papers up for sale in 2006, Los Angeles-based entertainment industry executive David Geffen, a billionaire, expressed an interest in acquiring the Los Angeles Times.“Someone on the local level could move in” if Cox auctions the AJC, Fink said. “There are people who have a true interest in what a major metro newspaper means to a city. I think that even non-journalists look at the role of the AJC in Atlanta as absolutely essential to good government and good business.”Benchmark Co. stock analyst Edward Atorino said he expects the AJC would find a buyer, if Cox put it up for sale. “A big market newspaper, despite the doom and gloom in the industry, will always attract other companies, or local groups or a local person with a lot of money,” said Atorino, who has followed newspaper stocks for more than 30 years.Atorino said that, based on the $650 million that Cablevision paid Chicago billionaire Sam Zell in May to acquire Newsday, the AJC could perhaps fetch about the same price. That's because Newsday and the AJC have similar circulation numbers on Sunday and during the week. Atorino said that the estimated price for the AJC could change, depending on the AJC's level of cash flow. A deal announced earlier this month shows that it's not impossible to sell a newspaper in the current environment. MediaNews Group Inc. this month sold a daily paper, the Connecticut Post of Bridgeport, and seven other weekly publications, to Hearst Corp. for $155 million, according to The Associated Press.Anne Cox Chambers and other family members are the beneficiaries of financial trusts that own Cox Enterprises. It's extremely difficult, if not impossible, to analyze the tax consequences of a sale of the AJC by Anne Cox Chambers and the affiliated trusts, said Jones Day of counsel Ralph R. Morrison. That's because Cox Enterprises is not required to make public information such as the structure of the financial trusts that own the company, Morrison said.If the AJC were to be sold, the price it would fetch is likely far less than what the Cox family could have obtained a few years ago. Consider the case of the Star Tribune of Minneapolis. Acquired by McClatchy in 1998 for $1.2 billion, McClatchy sold the Star Tribune in December 2006 to Avista Capital Partners for $530 million, plus a $160 million cash tax benefit. The $690 million total is almost half what McClatchy paid for the paper.
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