Commentary; Posted: 4/5/06
Future is shaky for Pioneer Press
David Purdy
Guest Columnist
The St. Paul Pioneer Press is on the market with a huge price tag and a shaky future.
After a recent corporate merger, it looks as though the St. Paul Pioneer Press is going to be up for sale or may even be shut down completely. McClatchy Co., a leading newspaper and internet publishing company, and Knight-Ridder, one of the nationís leading providers of information and news, have merged. In one of the largest print media buyouts in history, McClatchy purchased Knight-Ridder and all its subsidiary newspaper companies in the process.
One of those subsidiary companies is the St. Paul Pioneer Press. This merger has resulted in two McClatchy owned newspapers in the Twin Cities area. The St. Paul Pioneer Press was owned by Knight-Ridder and the Star Tribune is a subsidiary of McClatchy. McClatchy now owns Knight-Ridder, and by default, owns the Pioneer Press.
Although the Pioneer Press showed a 7.5 percent increase in advertising revenues during the last calendar quarter of 2005 and over 10 percent in January of 2006, it was still one of the least profitable papers owned by Knight-Ridder. Now that McClatchy owns Pioneer, it stands to reason the Pioneer Press may be on its last legs.
McClatchy acquired the Star Tribune in 1998. Most of the debt incurred to acquire the Star Tribune was eliminated using the operating cash flow. That approach made good financial sense for a corporation that boasts a debt of less than 1 percent of its total market capitalization. This would seem to be McClatchyís forteótaking on large projects with leverage and de-leveraging over time.
There is the possibility both newspapers can be maintained and keep the status quo for the community and the employees of Pioneer Press. McClatchy can sell Pioneer, which would also have the effect of helping eliminate debt accrued from the acquisition. Another option would be to close and liquidate the Pioneer Press.
Either way, McClatchy will have to make a move to either sell or shut down the Pioneer Press amid screams of anti-trust violations. It remains to be seen which course of action McClatchy will take.
Currently, McClatchy has put the Pioneer Press on the market, at a whopping price tag rumored to be more than $100 million, and because this small newspaper press is not as profitable as many of the larger presses of this kind, finding a buyer may prove difficult. Many private individuals have been scared off from even considering buying the Pioneer Press due to this hefty price tag. McClatchy seems to be aware of this concern, and there is rumor that at least 12 other small presses, Pioneer Press included in the bunch, will be sold as a lot to a single buyer.
In the meantime, the Pioneer Pressís fate is still up in the air. How does this affect the 800 or so employees of the Pioneer Press and the Twin Cities community?
Business acquisitions are a stressful endeavor for all concerned, especially the current rank and file of the company being acquired. The employees of the Pioneer Press wonder from day to day whether they will even have a job the next morning.
McClatchy and Knight-Ridder will obviously benefit and profit from this merger. McClatchy will rise up from the number 10 spot to assume Knight-Ridderís number two spot in size. Knight-Ridderís shareholders will breathe a sigh of relief and McClatchy will also reap the rewards.
What about ëJoe the reporterí in Saint Paul? The corporate giants have had their business analysts, financial advisors, and investment professionals work out all of the acquisition details. The financing has been arranged and the terms agreed upon by all parties concerned.
With two major daily newspapers in one locale, the competition between the Pioneer Press and the Star Tribune has been an ongoing rivalry for years. Itís easy enough to see how closing the Pioneer Press would definitely be a boon for the Star Tribune. Since McClatchy now owns both Pioneer Press and the Star Tribune, should they not be able to get the price tag for the Pioneer Press they are seeking, liquidation and shutting down the Pioneer Press might be a real, viable option for McClatchy.
On the side of the Pioneer Press is the Newspaper Guild. The Guild has arranged financing, set up an acquisition company, and hired financial advisors. This acquisition would benefit the Pioneer Press, the community and the 800 or so employees of Press. Not to mention the families of the employees and the ability to maintain the hometown paper.
The reality of the acquisition, the most personal and the most impact lies in a reduction in force. Historically, newspapers employ one newsroom employee for each 1000 papers in circulation. Currently, the Pioneer Press has 220 newsroom employees. From a corporate standpoint, there is approximately 30 percent excess in the newsroom.
Keeping this standard in mind, it is also well known in the newspaper industry that a reduction in newsroom employees results in a reduction in circulation, which in keeping with the domino reduces advertising dollars, so the cuts are not concentrated in the newsroom, but in other departments such as production and trucking.
The most unpopular, least likely but most financially savvy move would be to eliminate the Pioneer Press altogether. Fourteen years ago, McClatchy did this in Anchorage Alaska. So as it has been done before, experts see this as not a likely move on McClatchyís part.
The implications from a move such as this would be devastating in several areas. First and foremost, employment concerns and community stability. Then, the result of a new and bigger sheriff in town. Closing the Pioneer Press would increase Starís circulation, but by no means would that increase be able to absorb the fallout from Pioneerís workforce layoffs.
On the other hand, if Pioneer sells to an individual or another small press, there is no way that the Pioneer Press, under the new ownership, could compete with the huge conglomerate McClatchy, especially after the acquisition of Knight-Ridder, would make. In other words, since McClatchy owns the Star Tribune, the only local competitor for the Pioneer Press, this huge corporation could operate much cheaper and more efficiently than an individual or small corporation owned Pioneer Press could.
However, this point seems to be moot, since the price tag set on purchasing the Pioneer Press is cost prohibitive to individuals and small press companies. So for now, the Pioneer Press is on the market, for sale, with a huge price tag and a shaky future.
Writer David Purdy is president of Wealth Management Midwest, Forest Lake, and offers securities through Linsco/Private Ledger, Member NASD/SIPC And an investment advisor.
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