Despite woes, newspapers attract bidders

NEW YORK (AFX) - For an industry that is allegedly on a fast track to becoming extinct, big-city newspapers have been attracting a lot of interest from potential buyers. 

Ron Burkle and Eli Broad, two Los Angeles billionaires already known to be interested in the Los Angeles Times, upped the ante this week with a bid for the paper's parent company, Tribune Co. The bid came just one day after Tribune fired Dean Baquet as editor after he publicly defied orders to make budget cuts. Burkle and Broad are hardly alone. In Boston, Baltimore, and Hartford, Conn., a number of wealthy individuals have recently stepped up to express interest in taking over those cities' newspapers.

All this might come as a surprise given that the financial outlook for newspaper companies has continued to worsen in recent weeks:

-- Publicly held newspaper companies just turned in predominantly poor third-quarter results;

-- An industry group reported last week that average weekday circulation continued to slide, a trend that has persisted for nearly 20 years;

-- Readers and advertisers continue to migrate to the Internet;

-- A prominent Wall Street analyst now believes that newspaper advertising will actually shrink by 1.5 percent next year.

Privately held publishers aren't faring any better.

Just a few months after The Philadelphia Inquirer and the Philadelphia Daily News were taken over by a local investor group that promised investments in the papers, a drastic decline in business there has led to talk of as many as 150 potential staff cuts. Unions there have authorized a strike if the already drawn-out labor negotiations should fail.

And this is an industry that smart, successful businessmen want to get into? Apparently, yes.

"There are banks waiting in line to back these guys," says Larry Grimes, president W.B. Grimes & Co., a newspaper broker based in Gaithersburg, Md. "There's a perception on the part of the financing groups that we're at the bottom of this trend, and that this is a good time to strike while valuations are depressed."

None other than Jack Welch, the business guru, best-selling author and former CEO of General Electric Co., is exploring a possible bid for The Boston Globe from The New York Times Co., along with advertising executive Jack Connors.

Welch was traveling and couldn't be reached for comment for this article, and Connors declined to comment. Fellow Bostonian David D'Alessandro, ex-CEO of John Hancock Financial Services, said he would consider joining a bid if Connors, a friend of his, asked him to participate.

D'Alessandro says he's not contemplating a bid for the Globe on his own, but he said he does see the appeal of the Globe as a unique, marquee property that he thinks could be made into a strong regional media outlet.

"This is not a private equity play where you're going to be able to double the value in five years," D'Alessandro says. "The question is, can you stop the bleeding and increase the advertising and circulation, and I happen to be one of these people who believe you can -- if you invest in it, and stop trying to carry as much of the national news and make it more of a regional player."

Generally speaking, newspapers are still a very profitable businesses, with metro dailies earning between 12 and 25 cents for every dollar of revenue, which is still way ahead of most American companies, Grimes says.

What Wall Street is concerned about is that the trends are going the wrong way for newspapers, with advertising sluggish, circulation slipping, and costs for personnel and paper edging higher, which could compromise those healthy profit margins in the future.

Last month Lauren Rich Fine, a newspaper industry analyst with Merrill Lynch, further lowered her already gloomy outlook for newspaper advertising revenue, saying she now expected no growth at all for 2006, down from a previous estimate of up 1.2 percent, and a decline of 1.5 percent in 2007, compared with her former estimate of 1.1 percent growth.

That's not stopping a group in Baltimore led by former county executive and Baltimore native Theodore G. Venetoulis, who have expressed interest in buying The Sun, a venerable newspaper owned by Tribune, which also owns 10 other papers and a group of TV stations.

Venetoulis, who now is now a magazine and community newspaper publisher, declined to provide details about his group but said that their undertaking was "part civic enterprise, part investment."

"We felt that the model of conglomerate ownership of these newspapers wasn't working," Venetoulis said. "We felt that local ownership could be not only more profitable but also put a great deal more resources in the production of news and the journalism product."

To be sure, it's been a tumultuous week for America's newspapers, but not all the news has been bad.

In Philadelphia, the highly regarded former city editor of the Inquirer, Bill Marimow, was named the new editor this week, providing a welcome dose of reassurance to a frazzled newsroom.

Michael Vitez, an Inquirer staff writer for 21 years and a 1997 Pulitzer Prize winner, called Marimow's hiring "a bold and a brilliant stroke" by Brian Tierney, the Inquirer's new owner.

As for the talk of major layoffs, "I'm hopeful that it isn't as bad as forecast," Vitez said. "Tierney has been very frank -- the bottom line is bad, but we're going to get through it." Copyright 2006 Associated Press. All rights reserved. This material may not be

Copyright 2006 AFX News Limited. All Rights Reserved.