UPDATE 1-Dow Jones might sell Ottaway papers
(Adds analyst comment, background on earlier sale)
By Megan Davies and Robert MacMillan
NEW YORK, Nov 27 (Reuters) - Dow Jones & Co Inc DJ.N , which News Corp NWSa.N is buying for $5.6 billion, said on Tuesday that it might sell its local newspapers.
The Ottaway chain runs eight daily and 15 weekly papers in seven U.S. states, including the Times Herald-Record in Middletown, New York, and the Cape Cod Times in Hyannis, Massachusetts, Dow Jones said in a statement.
Options under consideration include selling some or all of the papers, the company said.
The deal follows Dow Jones's sale in October 2006 of six Ottaway newspapers for $282.5 million in cash to Community Newspaper Holdings Inc, a privately held publisher based in Birmingham, Alabama.
Most of the publications are in northeastern states like Pennsylvania and Massachusetts, though some are located in California and Oregon.
The Ottaway papers reflect a broader trend of falling revenue affecting the broader U.S. newspaper business. In the third quarter, operating income fell 13.4 percent to $12.2 million, while advertising sales dropped 8.8 percent.
Pressure on newspaper stocks and high debt limit the number of publishers who might want to buy the papers, Bank of America analyst Joe Arns said.
GateHouse Media Inc GHS.N, another publisher active in the Northeast, has a ratio of net debt to earnings before interest, taxes, depreciation and amortization during the past 12 months of about six times, Arns said.
Other publicly traded companies that could be interested, such as Lee Enterprises Inc (LEE.N) and New York Times Co (NYT.N), also have high debt levels, he added.
"There isn't really a lot of room on their balance sheets to take on much more debt," he said.
Privately held MediaNews Group Inc, which owns papers in the Northeast, declined to comment. GateHouse Chief Executive Michael Reed was not immediately available for comment.
Jim Ottaway Jr, whose family owned the papers before selling them to Dow Jones in 1970, said he is not trying to buy the papers.
Ottaway, a former Dow Jones executive, opposed News Corp chief Rupert Murdoch's bid to buy Dow Jones, which also publishes The Wall Street Journal, Barron's investor's weekly and the Dow Jones Newswires financial news service.
Reuters Group Plc RTR.L RTRSY.O competes with Dow Jones in providing financial news. (Editing by Derek Caney and Gerald E. McCormick)
