The Waiting

Stribbers bide their time; the Guild gears up for a fight

It was a month ago this week that McClatchy CEO Gary Pruitt announced the sale of the Star Tribune to Avista Capital Partners, and, big surprise, there are still few visible signals about the intentions of the new owners. The most tangible impact of the deal, for now, is being felt elsewhere around the industry. The sale of a top-15 market daily newspaper for between 6 and 7 times its annual cash flow—at a time when most analysts still believed that 9 to 12 times cash flow was the going rate—affected the prospective value of every other big-city newspaper in ways that have yet to shake out.

Last week the Chicago-based Tribune Company, whose holdings include the Chicago Trib, the L.A. Times, the Chicago Cubs baseball franchise, and 26 broadcast outlets, closed out a four-month-long auction with a whimper. At least three major private equity firms that were deemed potential buyers declined to make bids, apparently leaving only two groups of suitors—one led by investors Eli Broad and Ron Burkle, whose deal would reportedly increase the company's debt from $3.5 billion to $10.7 billion, and one led by former L.A. Times owners the Chandler family, who have already made clear they would liquidate the assets piecemeal. The Washington Post traced the meager bidding in part to the Strib sale, noting that "One crucial turning point in the Tribune's auction was the surprise bargain-basement sale of the Minneapolis Star-Tribune in December, which scared many bidders away, according to one industry source."

There is one bit of news on the home front, though it doesn't reveal much. On January 10, Avista CEO Thompson Dean told Bloomberg News, "Our goal is to make 25 percent returns [on Avista's first buyout fund], and we believe we have that in our current portfolio in spades." Considering that Avista's principals were known for fund returns up to 50 percent in their days at DLJ Merchant Banking/Credit Suisse, optimists might count that a good sign. But there are at least 11 properties in the portfolio, which is dominated by energy and health care holdings. And absent any analysis of them, it's impossible to guess what that might mean for target margins at the Strib in particular.

Did the Strib sale throw a wrench in the Tribune Company auction?
Nick Vlcek
Did the Strib sale throw a wrench in the Tribune Company auction?

Meanwhile, though, if it's any consolation to the restless hordes of 425 Portland Avenue, it seems likely that Avista entered this deal knowing nearly as little about the Star Tribune's workings as Strib employees know about Avista. It's impossible to be sure when the buyout firm began researching the property, or how thorough a due diligence it was able to conduct prior to the sale. But the known timeline suggests it was a more rushed wedding than most. On December 26, the day the sale was made public, Gary Pruitt said that the McClatchy board had voted to sell the Star Tribune a little less than a month previously, on November 29. It was obviously long enough to satisfy Avista regarding the paper's financials. It's harder to think it was long enough to give the firm any tangible idea of what it will mean to operate its first daily newspaper.

So if answers about the future of the Star Tribune are slow in coming, part of the likely reason is that Avista is just getting around to considering many of the questions. A few areas to watch in months to come:

 

The Washington bureau. One of the cardinal rules of old-school newspapering was that every big-city daily maintained its own Washington office to keep an eye on national affairs and sort out their impact on people back home. Most big-city papers also have at their disposal the combined efforts of a chain's other Washington correspondents. The orphaned Star Tribune will no longer have that, and the paper's own Washington correspondents, Kevin Diaz, Greg Gordon, and Rob Hotakainen officially became McClatchy wire reporters in the course of the company's post-Knight Ridder machinations. No one knows what happens to those positions at the Strib now, even if the individual reporters should decide to stay there. If Avista's managers view the news like most of their Wall Street brethren, as a commodity, then certainly this particular commodity could be had more cheaply from wire services. For outsiders looking in, the Washington question will be one of the best early measures of the new owners' attitude toward their product.

 

The Newspaper Guild versus Avista. I've spoken to hardly anyone who doesn't think the new owners will try to do away with the Newspaper Guild, the paper's powerful newsroom union, whose current contract expires in 2008. In anticipation of a coming fight, Guild members have already begun recruitment efforts directed at getting more of the paper's workforce to unionize. Reporter and Guild officer Chris Serres sent me this email update last Sunday:

"One positive outcome from this sale is that many non-union employees at the Strib, primarily in advertising and circulation, have expressed concern that they're operating 'in the dark' right now, with no indication about their futures with the company. At least a half-dozen, perhaps more, have contacted Guild members directly seeking information. We see this as a rare opportunity to bring all the non-union people at the newspaper into our fold.

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