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May 6, 2008 / Toby Dayton

What Is The Star Tribune Worth Today?

Following the report in the New York Post on Sunday that the Star Tribune was near bankruptcy, Strib publisher Chris Harte has repeatedly denied the rumors and publicly stated that the daily has sufficient liquidity. But the paper has brought in the Blackstone Group to help restructure the company’s debt-laden balance sheet that is about as stable the 35W bridge last July. Blackstone, lest anyone forget, is the private equity firm run by Steven Schwarzman who, along with guys like Dennis Koslowski, stands as perhaps THE poster child of private equity excess and capitalism run amok (with his 2006 pay of $400M and a 60th birthday party that he threw for himself that was headlined by Rod Stewart).

At any rate, in addition to restructuring the balance sheet and possibly buying out some portion of Credit Suisse’s position or making additional loans to the Strib, Blackstone might also be making an equity investment in the paper. Under any scenario, a critical question centers around the current valuation to place on the newspaper. An equity investment demands that the question be answered, but so too does a debt investment that contains any type of conversion feature. And even if the debt can never be converted to equity, the firm will undoubtedly develop its own valuation as part of its economic modeling that is essential to generating a positive return, even in the event of default.

Avista paid $530M for the paper in 2006, 8 years after McClatchy paid $1.2B for the paper in 1998. If declaring bankruptcy implies a value of $0, then the valuation of the Strib today stands somewhere between $530M and $0. With one foot dangling over the edge of the abyss, I think it’s safe to say that the value is far closer to $0 than $530M and that Avista’s $100M investment has already been wiped off the table. The real question, then, is how brutally ruthless Blackstone will be to Credit Suisse and the syndicate of debt-holders that constitute the remaining $430M. A 50% haircut on the debt would seem to be a decent starting point, but given the fact that Schwarzman didn’t accumulate his $7.8B net worth by being the nicest guy in the sandbox, I’d guess that it’ll be even more painful than that. That places the valuation somewhere under $215M. I wouldn’t be shocked if the valuation placed on the Star Tribune today was somewhere near $150M, maybe even less given the current economic malaise. The sad thing is, no matter how low the number thrown out on the table, Avista and their creditors will take it. As one of the Twin Cities’ great business strategists Tony Christianson says, “When you’re wandering around the desert close to death, you don’t ask the well-digger how much he charges.”

[tags]Avista Capital, Blackstone Group, Steven Schwarzman, Rod Stewart, Dennis Koslowski, Tyco International, Credit Suisse, Star Tribune, Catching A Falling Rock, Decline of the Dailies, Newspapers, The Newspaper Industry, Will Minneapolis Lose Its Daily Paper?[/tags]