Deals
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Jeff Bezos has just shown how valuable one-of-a-kind newspaper properties can still be in the United States.
The multibillionaire founder of online retailer Amazon.com Inc may have paid more than four times the price that the financial results of the Washington Post suggests it is worth.
In Monday's deal, Bezos agreed to buy the Post and a handful of other newspaper assets from the Washington Post Co for $250 million. Going by the valuations of other newspaper deals and publicly traded media companies, though, the Washington Post would have been worth closer to $60 million.
The average sale of a metro U.S. newspaper has commanded a valuation of 3.5 to 4.5 times earnings before interest, taxes, depreciation and amortization (EBITDA), according to Reed Phillips, managing partner of the media investment bank DeSilva and Phillips.
Morningstar analyst Liang Feng estimated that the Washington Post's newspaper division posted EBITDA of $15 million last year, not including pension liabilities. Washington Post CEO Donald Graham said the newspaper division was profitable last year but declined to give a figure.
Based on those estimates, Bezos paid about 17 times 2012 EBITDA.
Washington Post Co's shares rose more than 4 percent on Tuesday.
Such a large premium, which essentially pays for intangible assets like the brand name, may mean that any future sellers of prestigious newspapers will raise their price expectations. Other major newspapers that are in the sights of potential buyers include the Los Angeles Times and the Chicago Tribune.
Analysts and bankers said that when it came to newspapers such as the Washington Post, the usual financial metrics did not apply. The price, as in the case of other trophy assets like sports teams, depended on what a buyer was willing to pay.
"The reality for newspapers like the Washington Post is it's impossible to use traditional financial metrics," said Paul Zwillenberg, a partner at The Boston Consulting Group. "These are trophy assets whose value is in the eye of the beholder."
The deal could be one bright spot in an otherwise dour outlook for the newspaper industry, which faces declining advertising revenue and subscribers as people increasingly get their news online and on handheld devices. Over the past five years advertising revenue - still the major vein of revenue for most newspapers - fell by half to $22.3 billion.
The New York Times Co, for example, faces many of the same headwinds as the Washington Post.
If the New York Times, which is controlled by the Ochs-Sulzberger family, were to decide to sell its flagship newspaper and demanded a similar premium as the Washington Post, it could be worth nearly $5 billion, based on the Reuters analysis. Currently, the New York Times Co's market value is $1.8 billion.
But Bezos' bet is relatively small compared with his fortune of around $25 billion, and the chances of any buyer paying a premium like that for the Times are remote. The last blockbuster deal of that size for a prestigious newspaper was News Corp's deal to buy Dow Jones, the publisher of The Wall Street Journal, for $5.6 billion in 2007. The following year it took a $2.8 billion non-cash charge on the purchase.
"The New York Times is not for sale," said a New York Times spokeswoman.
New York Times Co last weekend announced it would sell The Boston Globe and other New England properties to financier and Red Sox baseball team owner John Henry for $70 million. Boston Globe has a daily circulation of 245,572, roughly half of the Washington Post's 474,767.
Graham, whose family plucked the Washington Post out of bankruptcy in 1933, said in an interview on Monday that he based his price expectations partly on what other buyers had offered.
Graham said that the Post's investment bank Allen & Co reached out to no more than a dozen parties at the beginning of the year to gauge interest.
He hatched the deal with Bezos less than a month ago during the annual media mogul fest in Sun Valley, Idaho. The Amazon founder did not haggle over the price.
"I named a price and Jeff agreed to pay it," Graham said.
(Editing by Paritosh Bansal and Stephen Coates)
