What's left after a newspaper bankruptcy: 20 cents on the dollar

The parent company of the Philadelphia Inquirer, the Philadelphia Daily News, and the related Philly.com website could emerge from bankruptcy debt-free, if a proposal submitted by the ownership group that bought the paper in 2006 is accepted by lenders in court. Bruce Toll, of homebuilder Toll Bros. (TOL) fame, and public relations executive Brian Tierney are leading a bid to buy out the more than $300 million the company owes for 20 cents on the dollar in cash and real estate.

As the newspaper business continues to reel from a combination of high fixed costs and falling advertising revenue, established papers across the country have been going bankrupt or seeking help from wealthy local citizens. The Boston Globe, which the New York Times Co. (NYT) owns but is actively shopping for sale, has seen interest from at least two local groups, as well as one private equity fund. Even though such newspaper sales have not worked out well in the past, there is hope that re-making the Inquirer as a debt-free company will allow it to be marginally profitable.

Before agreeing to accept a large loss, the lending group would likely put the media properties up for auction in an attempt to solicit other, higher bids. Including debt used in the purchase, the 2006 acquisition price was over $500 million dollars. That compares to less than $100 million currently offered by Tierney and Toll, both of whom took equity stakes in the original deal that are now worthless.

Despite the enormous decline in value of the newspaper franchise and struggles the company has gone through in reorganization, Tierney remained optimistic and said that the two papers and website could make $10 to $11 million this year. "We're the only place in America which has been able to get new equity into a newspaper business," he added, although the lenders have yet to publicly respond.

What does this mean for the small handful of remaining newspaper companies like the New York Times Co., Washington Post Co. (WPO), and Gannett (GCI)? Except for WPO, the others have negative tangible equity in a business where the intangibles that were once a major source of profit -- exclusive distribution and reach in a particular geography -- are now a liability associated with high-cost distribution channels. All have equity values over $1 billion, and as the slog to find a new method of content monetization drags along with no sign of a turnaround, expect the stocks to continue to lag.

James Cullen edits and writes at CollegeAnalysts.com. He has no personal position in the stocks mentioned above.

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