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Apollo in the lead to buy Digital First Media, say sources-Reuters

(Reuters) – Buyout firm Apollo Global Management LLC is in advanced talks to acquire most of the assets of Digital First Media, publisher of the Denver Post and San Jose Mercury News, for around $400 million, according to people familiar with the matter.

The potential deal illustrates private equity’s interest in the newspaper industry. Even though newspaper readership is declining, buyout firms say they believe they can squeeze out a profit through cost cuts and new digital offerings.

Apollo has so far prevailed over rival Cerberus Capital Management LP in the auction for Digital First Media, the people said.

Digital First Media has annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $125 million, the people said. Assets generating $25 million in annual EBITDA are, however, being excluded from the sale, the people added. It could not be learned what those excluded assets were.

The negotiations could still fall apart or the outcome could change, the people cautioned, asking not to be named because the matter is not public. Representatives of Digital First Media, Apollo and Cerberus declined to comment.

The newspaper business has suffered as more people choose to read news on laptops, smartphones and tablets, and as advertisers turn to digital media to reach audiences.

Media companies including Gannett Co Inc, News Corp, Time Warner Inc and Tribune Media Co have spun off print businesses in recent years to focus on faster growth assets such as broadcasting.

Digital First Media, the second-largest U.S. newspaper chain by circulation, reaches 67 million Americans each month across 15 states, according to its website. Its newspapers include the Los Angeles Daily News, St. Paul Pioneer Press and the New Haven Register, according to its website.

New York-based Digital First Media, which is controlled by the hedge fund Alden Global Capital, said last September it was exploring strategic alternatives and had hired UBS AG as financial adviser.

More deals for newspaper companies are expected. New York media and real estate magnate Mortimer Zuckerman said last month he might sell the New York Daily News and had hired the bank Lazard Ltd as an adviser.

Last month, New Media Investment Group Inc bought Stephens Media LLC, publisher of eight daily newspapers including the Las Vegas Review-Journal, 65 weeklies and 50 websites, from the private equity arm of Stephens Inc for $102.5 million in cash.