Will Journal Communications become a takeover target?
By Andrew Weiland, of SBT
Media industry analysts and employees are wondering aloud if Journal Communications Inc.’s decision to become a publicly held company ultimately will lead to the firm being acquired by a larger media corporation.
"A number of people are concerned this is the first step in positioning us for a sale," said Lauria Lynch-German, president of the Milwaukee Newspaper Guild, which represents about 275 Journal Sentinel employees.
"I do think any time a major metropolitan newspaper comes on the market, it’s highly attractive," said John Soloski, author and dean of the Grady College of Journalism and Mass Communication at the University of Georgia.
Journal Communications executives previously said the decision to launch an initial public offering this year was made to raise capital to grow the company and acquire other media outlets.
Although Journal Communications employees still own a significant portion of the outstanding stock shares of the firm, a larger media corporation could make an offer too good to refuse, according to Soloski, who is the co-author of the book, "Taking Stock: Journalism and the Publicly Traded Newspaper Company."
"The price they are going to be able to sell those shares is going to increase, and they’re going to want to cash in," Soloski said.
"The big corporations can offer prices that are hard to resist," said Josh Silver, managing director of Free Press, a Northampton, Mass.-based nonprofit organization that advocates for reforms in the media.
Newspapers generally are profitable, but the industry is mature, and the only way for a newspaper company to grow is to acquire additional properties, Soloski said.
Journal Communications itself has purchased 28 broadcast stations during the last five years.
"It really is hard to make it in this business anymore as a small operation," Soloski said. "You’re really forced to acquire different properties."
"Newspaper corporations have become larger," said William Thorn, journalism professor at Marquette University. "There are fewer and fewer, but very big fish, and the smaller fish are being acquired by the big fish."
Several media conglomerates are looking to expand and would likely be interested in Journal Communications, Soloski said. Those companies may include Gannett Co., Tribune Co., Knight Ridder, McClatchy Newspapers and Dow Jones & Co., he said.
Stock analysts agree that the larger media corporations will likely be more aggressive about making acquisitions as the economy rebounds.
A smaller publicly held company that is owned by shareholders is more likely to become a takeover target than a closely held, locally owned firm that can turn away prospective buyers by demanding ridiculously high prices, said Nancy Barber, portfolio manager at US Bank in Minneapolis.
Furthermore, the field of publicly held regional newspaper companies is not crowded, which raises the profile of a firm such as Journal Communications as a takeover target, Barber said.
"Most certainly. When you look at what is available to buy, you don’t have very much," Barber said.
"Relative to the previous (employee-owned) structure, it would certainly be more vulnerable," said William Hyatt, senior equity investment analyst at Chicago-based Northern Trust Corp. "Consolidation is an important consideration for their growth strategies going forward. The other part is who is willing to part with the family jewels, so to speak."
The history of Journal Communications is similar to that of Central Newspapers Inc., the former parent company of the Indianapolis Star. Central Newspapers, long a local, privately held company, became a publicly traded company in 1989 and was ultimately acquired by McLean, Va.-based Gannett Co. Inc. in 2000 (see accompanying graphic).
"Milwaukee is exactly the kind of market Gannett likes to go after," noted Tom Harton, editor of the Indianapolis Business Journal.
Gannett’s $2.75 billion purchase of Central Newspapers and The Indianapolis Star has had an impact on the community’s impression of the newspaper, Harton said.
Shortly after acquiring Central Newspapers, Gannett executives told analysts they could cut $100 million in costs from the company, largely by eliminating positions and demanding the Star accomplish more with less staff.
In the months that followed the acquisition, several key Star editorial staff members resigned or were replaced. The revolving door has continued at the Indianapolis newspaper. In July of this year, the Star posted 10 more open positions on the journalistjobs.com Web site, according to the Indianapolis Business Journal.
"The general perception is that, because Gannett is so bottom-line oriented, the perception is they have a younger staff and a lower pay roll, and a lot of openings," Harton said.
A significant difference between Journal Communications and Central Newspapers is that Central Newspapers was family-owned, while Journal Communications was owned by a local trust and employees. Members of the Pulliam family, which owned Central Newspapers, decided to sell the company months after the death of publisher Eugene S. Pulliam.
Journal Communications will most likely need to either continue acquiring other properties or be bought out by a larger conglomerate, Soloski said.
A rule change approved in June by the Federal Communications Commission would have allowed media companies to own more media outlets, including both television stations and newspapers in some cities. Journal Communications already owns WTMJ Channel 4 and the Milwaukee Journal Sentinel because it was grandfathered into the old rules.
Implementation of the controversial new rules is being delayed by a Federal Appeals Court in Philadelphia, and Congress is already planning to make changes.
Still, some media observers do not think Journal Communications has become an instant acquisition target for the larger corporations.
"They’re not in the playing field as a target and won’t be for a long, long time," said John Morton, a newspaper industry analyst and president of Morton Research Inc.
"I don’t think they went public to be acquired," said George Harmon, associate professor in the Medill School of Journalism at Northwestern University in Evanston, Ill. "My guess is they went public to acquire capital. They could have been acquired privately, and they wouldn’t have had to make all of these (public) disclosures."
Morton said Journal Communications’ decision to go public was likely an attempt to avoid being sold.
Under the previous employee-ownership structure, employees had borrowed a total of $430 million to buy shares of the company. Company executives were concerned about that level of debt exposure and cited it as one reason for taking the company public.
The company likely would have had to be sold if it had not gone public, Morton said.
Oct. 31, 2003 Small Business Times, Milwaukee