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March 26, 2008 / Toby Dayton

3 Days Of The Condor? How About 3 Days Of The Albatross…

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Minneapolis Star Tribune Publisher Chris Harte recently concluded 3 days of closed-door meetings (so secret that confidentiality agreements were required for participants) with his senior management team, union leaders, the turn-around firm that has been brought in (Restructuring Associates), and Bain Consulting. The topic of discussion was, of course, the dire predicament facing the daily paper. Revenue is declining so rapidly (precipitously is the word Harte used) and so far beyond what Avista had forecasted in their models that cash flow may not be adequate to cover debt costs. Avista financed the $530 million acquisition with about $400 million in debt, and high stress levels have apparently turned into downright panic.

Given the horrendous conditions of the capital markets these days, combined with the dilapidated condition of the daily newspaper industry, selling is not an option. As Harte noted in the write-up following the 3 day meeting, cutting expenses is regarded as the only option to get through ‘the immediate financial challenges.’ As the same write-up noted, everyone agreed that the paper is ‘at a crossroads’ and significant changes are likely.

The same abysmal conditions are plaguing a number of other newspaper companies in the country, including MediaNews, whose credit rating has been reduced twice in the past few weeks. In a recent post in followthemedia, the following was written about the Strib’s ongoing saga:

And the story of the Minneapolis Star Tribune (Strib) is really a tragedy. A proud newspaper under Cowles ownership, McClatchy’s offer of $1.2 billion in 1998 was an offer that just couldn’t be refused. McClatchy had a few good cash cow years but by 2006 it understood that owning large metropolitan newspapers with feisty unions and declining revenues was not the place it wanted to be, so having disposed successfully 11 Knight Ridder newspapers it didn’t want, it closed 2006 with a fire sale for the Strib, selling it to private equity firm Avista Capital Partners for $530 million of which around $400 million was borrowed.

Everyone at the time marveled at Avista’s great bargain, and criticized McClatchy for selling out so low (it did ok because of tax benefits tied into the sale). But McClatchy may have the last laugh in Minneapolis because nobody figured (and that has to include McClatchy or surely they would not have bought Knight-Ridder) that things would get so much worse for newspapers, so bad as to put the debt payments in jeopardy. There already has been plenty of cost-cutting since the sale but apparently not enough and the three days of meetings make clear that something dramatic now needs to be done. Publisher Chris Harte said the Strib’s current financial difficulties result from a precipitous drop in revenue while expenses have remained virtually flat and he emphasized that expenses will have to be cut to get through the immediate financial challenges.

Expenses virtually flat? This from a newspaper that reported early last year after the McClatchy sale, “Bowing to the pressures of declining circulation and falling revenue, the Star Tribune announced a sweeping program of buyouts that will send 145 employees — including 50 in the newsroom — out the door through buyouts or layoffs….”

For the Strib, the most likely big change that surely is being given serious consideration (beyond firing half the employees) is a combination in one form or another with the St. Paul Pioneer Press. It makes sense from almost every angle, and the days of two dailies in the Twin Cities have to be numbered. If it doesn’t happen soon, we’re at risk of losing both papers.

[tags]Avista Capital Partners, Chris Harte, Bain Consulting, Restructuring Associates, How To Salvage A Wreck (Or Not), Three Days Of The Condor, Great Movies, Classic Movies, Classic Movies From The 70’s, Robert Redford, Faye Dunaway, The CIA, MediaNews, Star Tribune, St. Paul Pioneer Press[/tags]

One Comment

  1. Steven Rothberg, CollegeRecruiter.com / Mar 27 2008 11:15 am

    We have been blessed to have two newspapers in this town but I agree that those days are numbered. Will there be a merger in days, weeks, months, or years? Who knows. But this town ain’t big enough for the both of ‘em.

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