Dealtalk: Not For Sale? ... The Washington Post

Thu Sep 8, 2011 9:43am EDT

Related Topics

(Reuters) - Founded 134 years ago, The Washington Post newspaper is a byword for Pulitzer prize-winning political reporting. Think Watergate.

But the storied broadsheet has lost money for three years, and some shareholders of owner The Washington Post Co wouldn't weep if the paper were sold, allowing the company to focus on its for-profit education and cable businesses.

"The reason we own the stock isn't because of its newspaper business, it's in spite of it," said Charles de Vaulx at International Value Advisers, whose 7.4 percent stake in the company is the second-largest external holding after Warren Buffett's Berkshire Hathaway Inc's near-26 percent.

The Graham family has owned the company since it was bought in a bankruptcy auction in 1933, and controls most of the voting stock.

"If they ever reach the conclusion that one of their businesses, for instance, the newspaper business, is hopeless, I wish they'll be willing to cut the cord and not feel any emotional attachment," de Vaulx added in response to Reuters' questions on a possible sale of the Post. The company has not said it has any such plans.

The Washington Post Co is struggling not only with falling advertising revenue, but also with slowing profit at its Kaplan education unit.

The company did cast off one of its titles last year, selling the international weekly news magazine Newsweek to stereo magnate Sidney Harman for a token $1 plus $47 million in liabilities. Harman died earlier this year.

After that deal, The Washington Post Co Chairman and CEO Donald Graham, son of former publisher Katharine Graham, wrote to shareholders saying the company would look at selling businesses if "they are losing money and we think they are unlikely to return to profit."

Ajay Sadarangani, senior analyst at Manning & Napier Advisors, which holds a 6.6 percent stake in The Washington Post Co, believes the Graham family would have no qualms in applying that performance yardstick to the flagship newspaper.

"If the newspaper gets to a point that there's no way out or there's no feasible plan to turn it around, I don't think they'll not sell it or shut it down," he said.

So, could one of the great names of print media be put on the block?

Donald Graham declined to be interviewed for this article, but in an e-mail exchange made his stance clear.

"The answer to your question is no. That is spelled n-o," he wrote.

PRECEDENT?

In 2007, the Bancroft family agreed to the sale of The Wall Street Journal, one of the leading global financial newspapers, to Rupert Murdoch's News Corp -- after rejecting an initial approach -- at a 67 percent premium to the paper's publisher Dow Jones' share price.

That same year saw the Chandler family's Tribune Co, owner of a stable of major newspapers such as the Los Angeles Times and Chicago Tribune, taken private by real estate magnate Sam Zell. It filed for bankruptcy in 2008.

While Graham says 'no' to selling the paper, investors wouldn't mind some sort of shake up at the company.

The Washington Post Co shares, valued at just above $2.5 billion, traded near $1,000 apiece seven years ago. Last year, they hit a 14-year low. The stock is down 37 percent in 2011.

De Vaulx reckons the company is worth more than $600 a share -- almost double its current market level -- and expects more share buybacks, while Sadarangani said he would like management to explore spinning off the cable business.

They think the current stock price -- trading at around $316 -- represents only the value of the cable and broadcast business, and discounts the education and newspaper businesses.

The Kaplan division -- which helps more than 1 million students a year from kindergarten through to higher education and professional training -- has had a torrid couple of years as regulators took aim at the for-profit education sector.

The education division, traditionally the company's cash cow, accounts for around 60 percent of total revenue.

PAA Research analyst Bradley Safalow said last month he did not expect Kaplan Higher Education to generate any profit "as we get into the fourth quarter and 2012.

In May, Standard & Poor's placed its ratings for The Washington Post Co on CreditWatch with negative implications, specifically citing the weaker performance at Kaplan.

For now, the cable television division and its broadcasting unit are bright spots.

The newspaper division has lost money since 2008, when it reported a $192.7 million operating loss, largely on early retirement costs. Those losses have narrowed, to $164 million in 2009 and just $9.8 million last year, as the paper took restructuring measures and the economy emerged from recession.

Print advertising revenue at The Washington Post declined 6 percent to below $300 million in 2010.

De Vaulx values the newspaper business at $120-$260 million, and said he'd be disappointed if the Post's losses or EBITDA minus capex exceeded $15-$20 million for a few years in a row.

Many in the media industry just don't see the Post being sacrificed.

"The Graham family is a newspaper family, and I cannot envision any future scenario that would involve them spinning off the Washington Post," said industry analyst John Morton.

The Washington Post Co holds its annual shareholders Day on Friday.

(Reporting by Sruthi Ramakrishnan and A. Ananthalakshmi in BANGALORE, Additional reporting by Robert MacMillan in NEW YORK, Editing by Ian Geoghegan)

FILED UNDER: