Beverley Hills based private equity firm Platinum Equity has reached an agreement to purchase San Diego’s daily newspaper, the San Diego Union-Tribune for an estimated $15 million dollars. The paper, once the flagship of the far-flung and politically conservative Copley media empire, has been a distressed property in recent years. Last summer the heirs to the Copley fortune decided to cut their losses and put the paper on the market.
The family’s angst over the paper’s plight has been obvious over the past few years. Anxious for a solution, the Copley organization launched so many quick fixes, re-designs, re-launches, re-positions, cutbacks, flip-flops and fire sales that they began to resemble a losing political campaign more that the grand cartel with a license to print money that they once were.
The Union-Tribune has been losing circulation at an astonishing rate. Advertising dollars were disappearing faster than free food samples at Whole Foods. And, most importantly, the credibility and influence that the paper once wielded in the San Diego market had evaporated. While it was all fine and wonderful that the Copley newspapers were once profitable, making profits was only part of the deal. The real reason for all this hand wringing had to do with influence. If they could have found a way to maintain what they call their “market share” or “penetration”, they’d printed the paper on toilet paper, or switch to CB radio. But those days are over.
San Diego is the eighth largest city in the United States. It used to be a reliably Republican bastion, a Navy town, where dissent and dissenters simply weren’t tolerated. Richard Nixon called it his lucky city. The Union-Tribune was the face that the City showed the world. Changing demographics and a shift in the regions’ economic base away from the military towards high tech industries have altered things. Democratic majorities are emergent in most parts of the region, with the exception of the County Government. Given that the Union Tribune’s circulation was reaching just 8% of the households, the family wisely decided to trade their remaining hard assets for cold cash.
The San Diego newspaper was hardly alone in its troubles. Three dailies have closed up shop since the first of the year, and the clock is ticking in a half-dozen more metropolitan areas. What makes this sale noteworthy is that they found a willing buyer. Why would a private equity firm invest in such an obviously doomed venture that had already shed its tenured employees? The answer isn’t immediately obvious.
Private equity operators like Platinum Equity are often portrayed as slick, heartless financial manipulators that squeeze the remaining life from their acquisitions at the expense of the people unfortunate enough to be working there. That doesn’t seem to be the case here. In fact, it all seems too good to be true.
The U-T’s buyer says that its focus is operations, not financial manipulation, and it has a history of making long-term investments in the industries where it is active. Platinum calls itself an M&A&O company-mergers, acquisitions and operations-and, in fact, it often acts more like a strategic buyer of its companies than a financial one. It invests, sometimes heavily, after the acquisition in additional businesses, equipment, people and facilities that give its holdings a stronger position for the long haul.
They certainly have been a buying streak. Over the last 14 years, they’ve acquired nearly 100 companies with more than $27.5 billion in combined annual revenue at the time of acquisition. What’s hard to believe are the rates of return. Private Equity Intelligence Ltd., the British analyst of private equity fund performance, says investors in Platinum’s Equity Capital Partners Fund I of 2004, have seen a multiple of 2.68 (that’s $2.68 for every dollar invested) on their money, compared with 1.28 for all U.S.-based buyout funds originated in that year. As the company is privately held, all such claims are completely unverifiable.
Platinum has an operating partner in their acquisition of the Union Tribune-Black Press Ltd., a Canadian company with extensive newspaper and internet holdings in North America. Only two of their newspaper holdings are dailies: the Honolulu Star Bulletin and the Akron (Ohio) Beacon Journal. Standard & Poor’s’ Rating Services downgraded Black’s Corporate credit rating into junk bond territory based on debt acquired in its last US purchase-the Akron paper-predicting that the company would remain fiscally challenged at least through 2010. It would appear that, for the moment, Platinum has the money and Black is providing the muscle.
Black Press Ltd.’s track record with their holdings in Canada and the Northwestern States is pretty solid, and, if past performance is a reliable indicator, the San Diego daily won’t be the only paper changing hands in southern California. The company has been able to deliver decent returns with their publishing concerns (most of which are weekly papers) via regional grouping of advertising and operational personnel.
For San Diegans, it’s wait and see time. Will their daily paper shed its longstanding reputation as a reactionary mouthpiece with a particular distaste for anything associated with a trade union? (Both of the Black Press’ dailies endorsed Obama last fall.) Or will this sale be just another boondoggle in a City seeking to shed its past reputation as Enron-by-the-Sea?
Doug’s post was also cross-posted at Daily Kos.