Shocker! Someone’s Making Money in Newspapers

The profitable, if not completely recovered San Diego Union-Tribune should find a buyer, several sources are telling me.

Before you fall over in shock (I nearly did) consider these facts. Just seven years ago, the U-T generated $100 million of EBITDA.

The financial crisis of 2008 drastically cut profitability at the newspaper and cash flow in 2009 plummeted to zero, sources say. It was at this time that Platinum Equity acquired the U-T for roughly $35 million. Long-time owner Copley Press was the seller.

Two years later, the San Diego Union-Tribune has rebounded and is generating about 1/3 of its peak profitability, sources say.

The U-T could go for 5-7x EBITDA, one banker says. Other sources say the newspaper could fetch from $150 million to $200 million, suggesting a big payday for Platinum Equity.

The Copley Press acquired the San Diego Union and the Evening Tribune in 1928. In 1992, Copley merged the two newspapers to form the San Diego Union-Tribune. The newspaper has won several Pulitzer Prizes. However, subscribership at the U-T has reportedly dropped to 224,000 daily and 310,000 on Sunday.

Evercore Partners, which advised Copley on the sale of the U-T in 2009, is again running the auction. Books have been prepared for the U-T but have not gone out, sources say.

Because it is profitable, the U-T should find a buyer, sources say. It’s unclear if any of the traditional press will bid for it. The last time the U-T was up for sale, the Tribune Co., MediaNews Group and Ron Burkle’s Yucaipa Cos. each were interested in the company. The New York Times also looked at the U-T previously, as did the Black Press and McClatchy, sources say. However, in 2009, prospective buyers all backed away from the deal, leaving Platinum Equity as the remaining bidder, one source says. “This is a classic example of where traditional media execs flinched at the best moment to buy,” the person says.

Who would acquire the U-T now? Newspaper deals are rare now. The Journal Register Co., which publishes the New Haven Register and the Oakland Press, was sold to Alden Global Capital last week. Before this, the last significant newspaper sale occurred in 2008 when Cablevision acquired Newsday for $650 million.

“There are not many buyers of newspapers today,” one PE exec says. Also, Platinum Equity typically devotes significant resources to operations and improvements at their portfolio companies, the source says. “Any buyer will have to be very careful about what real EBITDA is post-Platinum,” the PE exec says.

Freedom Communications, parent of the Orange County Register, could bid. However, Freedom put the OC Register up for sale last year and it’s unclear if it will be involved. MediaNews, which owns 29 California newspapers, could be interested (especially since its deal for the OC Register appears to have collapsed), as well as the Tribune, which owns the Los Angeles Times and the Chicago Tribune, sources say.

The wild card in the mix is Alden, a distressed investor. Alden is believed to own about 40% of Freedom Communications and 30% of MediaNews. It also has stakes in Tribune, A.H. Belo and Gannett. Alden was an investor in the Journal Register before it acquired it. Alden, sources say, takes board seats on the companies it invests in but typically wields influence behind the scenes. It’s unclear whether Alden will make a bid for the San Diego Union-Tribune.

The Tribune Co., which filed for bankruptcy three years ago, would be the most natural buyer for the U-T, sources say. The newspaper company is sitting on $1.5 billion in cash, sources say, but is still mired in Chapter 11. It’s unclear if they will bid.

“It’s going to be a real bellwether to see whether corporate owners of newspapers in America will step up to buy what was once considered one of the great daily newspaper franchises,” says John Chachas, managing partner of Methuselah Advisors and the former cohead of Lazard’s media practice. The alternative, he says, is for newspapers to “continue to be the investment domain of distressed investors.”

Platinum Equity declined comment. Calls to Alden and MediaNews weren’t returned.