Sunday, February 26, 2006
NEWSPAPERS: Floyd Norris, Int'l Herald Tribune, on newspaper values
ORIGINAL URL:
http://www.iht.com/articles/2005/11/17/business/web.norris.php
Floyd Norris: Anybody want to buy a paper?
By Floyd Norris International Herald Tribune
FRIDAY, NOVEMBER 18, 2005
There is a venerable Wall Street joke featuring an investor who, having
accumulated a large position in an illiquid stock, decides it is time to
get out. ''Yes, sir,'' replies the broker when he is told to sell. ''To
whom?''
The current situation of Knight Ridder, the owner of such newspapers as
The Philadelphia Inquirer and The Miami Herald, brings back that joke,
albeit painfully.
The investor is a hitherto successful money manager named Bruce Sherman,
whose Private Capital Management invests money for wealthy individuals and
institutions.
Starting in 2000, he saw value in newspaper stocks, and at last report his
clients owned $4.2 billion worth of shares in nine newspaper companies.
That is about one-tenth of the total stock issued by those companies and
15 percent of the $30 billion Sherman manages.
He is the largest owner of seven of those companies, with 15 percent of
The New York Times Co., publisher of this newspaper; 26 percent of Belo,
publisher of The Dallas Morning News and The Providence Journal, and 38
percent of McClatchy, whose papers include The Sacramento Bee and The
Minneapolis Star-Tribune.
Founding families control those companies through super-voting stock.
But Knight Ridder, where his stake is 19 percent, has no such stock. After
Sherman warned he might support a bid to replace directors, Knight
Ridder's board agreed to put the company up for sale.
Sherman's problem is one known by many an investor who looks for cheap
stocks: Where he sees value, others see problems. The consensus Wall
Street view of newspapers now is that they are a dying breed, destined to
wither under relentless competition from the likes of Google.
Profits may be good now, but they will not last, as circulation declines
and advertisers seek newer media. An index of newspaper stocks is down 22
percent in 2005.
Money managers are required to file quarterly reports of holdings, but not
of purchases and sales. I estimate, based on those filings and assuming
trades were made at average prices for each quarter, that in the four
years through the end of 2003, Sherman's clients made about $600 million
in newspaper stocks.
Unfortunately for them, he kept buying after the shares peaked, and since
then they have lost about $1.2 billion, for a net loss of $600 million.
Newspaper stocks are not the only place where he is now bucking
conventional wisdom. Last week he reported owning 10 percent of Eastman
Kodak, the photo giant struggling to adjust to a digital world. He has
accumulated those shares since late 2003, and so far his investors are
down about $100 million in that stock.
Over the last decade, his investors did twice as well as those who bought
the stocks in the Standard & Poor's 500, but in the last year they have
lagged behind the index. It is now managing about four times as much money
as it was in 2001, when Legg Mason bought it and began marketing it to
customers. A strategy of owning about 150 stocks, many of them relatively
small, worked when he was managing a few billion dollars but now leaves
him in positions that are hard to get out of if he changes his mind.
Sherman did not agree to be interviewed for this column, and the company
did not comment on my estimates. But it is clear that he cannot get out of
his newspaper investments unless others come to see value where he does.
And that is where the auction process comes into play. Perhaps private
equity companies will see an opportunity to buy and break up Knight
Ridder. Perhaps other media companies will bid. The quality of news
provided to millions of Americans may depend on who buys, and on how they
manage, the papers.
Knight Ridder's plight also reflects the fact that Wall Street is not
always nice to those who do what the Street demands. Analysts called for
aggressive cost cuts and increased share repurchases, and Knight Ridder
complied, in some cases angering employees and creating public
controversies over whether news coverage would suffer. Investors showed
their lack of gratitude by sending the stock to a three-year low last
month.
Anyone want to buy a newspaper? Sherman certainly hopes so.
There is a venerable Wall Street joke featuring an investor who, having
accumulated a large position in an illiquid stock, decides it is time to
get out. ''Yes, sir,'' replies the broker when he is told to sell. ''To
whom?''
The current situation of Knight Ridder, the owner of such newspapers as
The Philadelphia Inquirer and The Miami Herald, brings back that joke,
albeit painfully.
The investor is a hitherto successful money manager named Bruce Sherman,
whose Private Capital Management invests money for wealthy individuals and
institutions.
Starting in 2000, he saw value in newspaper stocks, and at last report his
clients owned $4.2 billion worth of shares in nine newspaper companies.
That is about one-tenth of the total stock issued by those companies and
15 percent of the $30 billion Sherman manages.
He is the largest owner of seven of those companies, with 15 percent of
The New York Times Co., publisher of this newspaper; 26 percent of Belo,
publisher of The Dallas Morning News and The Providence Journal, and 38
percent of McClatchy, whose papers include The Sacramento Bee and The
Minneapolis Star-Tribune.
Founding families control those companies through super-voting stock.
But Knight Ridder, where his stake is 19 percent, has no such stock. After
Sherman warned he might support a bid to replace directors, Knight
Ridder's board agreed to put the company up for sale.
Sherman's problem is one known by many an investor who looks for cheap
stocks: Where he sees value, others see problems. The consensus Wall
Street view of newspapers now is that they are a dying breed, destined to
wither under relentless competition from the likes of Google.
Profits may be good now, but they will not last, as circulation declines
and advertisers seek newer media. An index of newspaper stocks is down 22
percent in 2005.
Money managers are required to file quarterly reports of holdings, but not
of purchases and sales. I estimate, based on those filings and assuming
trades were made at average prices for each quarter, that in the four
years through the end of 2003, Sherman's clients made about $600 million
in newspaper stocks.
Unfortunately for them, he kept buying after the shares peaked, and since
then they have lost about $1.2 billion, for a net loss of $600 million.
Newspaper stocks are not the only place where he is now bucking
conventional wisdom. Last week he reported owning 10 percent of Eastman
Kodak, the photo giant struggling to adjust to a digital world. He has
accumulated those shares since late 2003, and so far his investors are
down about $100 million in that stock.
Over the last decade, his investors did twice as well as those who bought
the stocks in the Standard & Poor's 500, but in the last year they have
lagged behind the index. It is now managing about four times as much money
as it was in 2001, when Legg Mason bought it and began marketing it to
customers. A strategy of owning about 150 stocks, many of them relatively
small, worked when he was managing a few billion dollars but now leaves
him in positions that are hard to get out of if he changes his mind.
Sherman did not agree to be interviewed for this column, and the company
did not comment on my estimates. But it is clear that he cannot get out of
his newspaper investments unless others come to see value where he does.
And that is where the auction process comes into play. Perhaps private
equity companies will see an opportunity to buy and break up Knight
Ridder. Perhaps other media companies will bid. The quality of news
provided to millions of Americans may depend on who buys, and on how they
manage, the papers.
Knight Ridder's plight also reflects the fact that Wall Street is not
always nice to those who do what the Street demands. Analysts called for
aggressive cost cuts and increased share repurchases, and Knight Ridder
complied, in some cases angering employees and creating public
controversies over whether news coverage would suffer. Investors showed
their lack of gratitude by sending the stock to a three-year low last
month.
Anyone want to buy a newspaper? Sherman certainly hopes so.
