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May 7, 2008 / Toby Dayton

Star Tribune Confirms Its Decrepit Valuation

In yesterday’s post, I attempted to estimate the current valuation of the Star Tribune in the context of Blackstone’s negotiations with Avista and Credit Suisse. I surmised that the $100M Avista invested is worth nothing today, and that the remaining $430M in debt was worth no more than $215M, and probably quite a bit less given the fact that the guy on the other side of the table is Steven Schwarzman, a guy who can afford to pay Rod Stewart $1,000,000 just to sing at his 60th birthday party.

Interestingly enough, today’s Star Tribune details with surprising precision, the valuation of the Strib. Avista has, in fact, notified its limited partner investors that at the end of 2007 it had written off 75% of the $100M it invested in the paper, and that the value of the remaining $25M is ‘uncertain.’ Of the $430M in debt, $340M is trading at 56 cents on the dollar which equates to a value of $190M. (I didn’t take the time to look up the debt yesterday but I guess I could have or maybe should have. I suppose that’s why bloggers are bloggers and not professional journalists). Another $96M in subordinated debt is trading at 10 centes on the dollar, for a value of $9.6M. That all adds up to a value of $225M that Avista places on its own company. Keep in mind, this is just the starting point for what type of value ‘the market’ would place on the very same assets.

The $25M of Avista equity will be, if it hasn’t been already, written off to $0. And who in the world would buy the Strib’s debt, even at those already steep discounts? True pricing can only be determined by what someone would pay for something, not what the owner thinks its worth. With the price of the debt undoubtedly plummeting daily, my $100M-150M estimate yesterday seems pretty close. Splitting the middle and using a $125M valuation would constitute a 76% decline in value since the paper was purchased last March. That also equates to a 90% drop in value from the $1.2B price McClatchy paid 10 years ago – right in line with the drop in share price experienced by most publicly traded daily newspapers over the same period.

[tags]Star Tribune, Minneapolis’ Daily Paper, Is The Strib Worth Even $100 Million, Avista, Private Equity Write-Downs, Newspaper Debt, Decline of The Dailies, 2008’s Best Short Strategy – Any Daily Newspaper, How Low Can You Go[/tags]