In the right hands, The Boston Globe could be profitable

The Boston Globereports that its future may lay in the hands of one or more wealthy local businessmen. The Globe, which is owned by the New York Times Co. (NYT), has been rumored to be losing more than $1 million a week, and its parent company has been aggressively pursuing cost cutting measures. The potential sale follows unsuccessful negotiations with the Globe's largest union, which led to the company cutting members' salaries by 23 percent.

Leading contenders to take over the paper are Stephen Taylor, part of the family which sold the Globe to the Times Co. in 1993; Stephen Pagliuca, a co-owner of the Boston Celtics basketball team; and Jack Connors, who co-founded advertising firm Hill Holliday, which was based in Boston before being acquired by Interpublic Group (IPG). The newspaper, however, may need more than a boost from local ownership.

Should a deal come to fruition, it could parallel two other situations involving papers being bought by local owners. In 2006, McClatchy (MNI) sold its media properties in Philadelphia (which included The Philadelphia Inquirer, Philadelphia Daily News, and website to a group led by Brian Tierney and Bruce Toll. Tierney founded a prominent Philadelphia-based public relations firm, and Toll co-founded upscale homebuilder Toll Brothers (TOL), which is based just outside the city. Likewise, in 2007, Tribune Company (the publisher of the Chicago Tribune and Los Angeles Times, among others) was taken private by Chicago-based real estate mogul Sam Zell. Neither transaction has been the boon to print journalism many had hoped for.

One year later, Tribune Co. filed for Chapter 11 bankruptcy protection to restructure its debt, which amounted to $13 billion. In a statement accompanying the filing, Zell explained, "A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt." But, he added, "The filing should not impact the way you do your jobs on a day to day basis." Similarly, Philadelphia Media Holdings, the group led by Tierney and Toll, filed for bankruptcy this February as falling advertising revenue caused the company to violate covenants on some of the more than $400 million in debt taken on to finance the transaction. Negotiations to restructure the debt failed, leading to a Chapter 11 filing. At the time, Tierney said, "This restructuring is focused solely on our debt, not our operations. Our operations are sound and profitable."

If The Boston Globe does find new buyers, they would be wise to heed the lessons of the recent past and structure an equity-based deal that puts the franchise on stable ground. The filings associated with the Philadelphia Inquirer bankruptcy showed the company was profitable on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis, meaning that with lower future interest expenses there would be a chance for the company to generate positive cash flow. This would require that owners accept a lower return on investment, however, and is one reason why print newspapers are increasingly shifting to the hands of local ownership groups who may have motives beyond pure profit.

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