The Copley Sale: Real Estate (and a Newspaper)

Wednesday, March 18, 2009 | The Copley family worked 81 years to build a newspaper dynasty in San Diego. In the end, though, their real-estate holdings — not their editorial product — may have helped close the deal to sell The San Diego Union-Tribune to Platinum Equity, a Beverly Hills-based private equity firm.

With the sale announced Wednesday, Platinum gets not only San Diego's most recognized media brand but its real estate, too.

Analysts say that may have been the most alluring reason to buy the Union-Tribune, a shrinking newspaper that has been fighting since 2006 to stave off an advertising revenue decline that preceded the ongoing recession.

Copley Press owns 13 acres in Mission Valley, where the newspaper's headquarters sit south of the Fashion Valley mall, as well as another half-acre in La Jolla, according to county tax records. That space formerly housed the Copley Press headquarters.

Newspaper analysts said it was difficult to deduce how much the newspaper was worth, as the deal's terms were not revealed. Citing unnamed sources, San Diego CityBeat pinned the cost somewhere close to $15 million and said Copley Press would retain a stake in the company and receive a share of revenues.

There's little to compare the sale to. No major newspapers have sold since the economy collapsed. Two papers that have recently been up for sale, Denver's Rocky Mountain News and The Seattle Post-Intelligencer, have stopped printing for a lack of a buyer. The Seattle paper is continuing online with a smaller staff. Other papers in Austin, Texas and Miami have not found willing buyers.

"We know they didn't pay much, whatever it is," said Ken Doctor, a media analyst with Outsell Inc. "My assumption is that the greatest value is the tangible value of the real estate."

Gary London, a local real estate analyst, valued Copley's two key properties at a combined $105 million and said they were likely "a major percentage of the transaction." London estimated the Mission Valley land's value at $100 million, calling it a "trophy property."

With that land, you could do "anything you want," London said. "It's just a terrifically well-located piece of property. It has tons of alternative uses. You could tear it down and build something else, there's a range of uses you'd look at."

Real estate often attracts private equity buyers, said John Morton, a Maryland-based newspaper analyst. "They see opportunities for real estate to sell it and lease it back. Or to just sell it outright. They look at everything. They don't just assume that the way the newspaper operates is necessarily going to be the same."

Morton said the typical rule of thumb before the recession was that a newspaper would sell for $1,000 for each average daily subscriber. A newspaper like the Union-Tribune, which today averages 287,000 daily subscribers, would've sold for $287 million.

Now, Morton said, that multiple is much lower, perhaps $500 per daily reader — or less.

"It's a difficult time to put a value on a newspaper," Morton said, "because it's not clear how well newspapers are going to come out of the recession."

Including real estate lowers the transaction's risk, London said. "If they bought the whole thing for equal to or near the price of the real estate, then they bought the media outlet for free," London said. "Having the [real estate] will buy them the time to do what they want" with the newspaper.

No one knows for sure what Platinum Equity has in mind for the Union-Tribune. Editor Karin Winner was unsure, telling the newsroom she didn't know whether she would be retained, according to a newsroom source. The private equity firm, in a press release, offered few specifics.

The newspaper "faces enormous challenge (sic) in a period of tremendous upheaval for the newspaper industry," Platinum said in a joint release with the paper. "We will bring a strong operational focus that helps ensure the Union-Tribune not only survives in this market, but thrives."

A private equity firm's typical modus operandi is to make cuts previous managers were unwilling to make in order to boost a company's profits and then sell, Doctor said. But few private equity firms have been willing to buy newspapers recently, Doctor said, because the papers have already cut their staffs so deeply. The Union-Tribune has endured rounds of buyouts and layoffs since 2006.

Mark Barnhill, a Platinum Equity principal, told The New York Times that the Union-Tribune remained profitable "but it is really close to the edge." The Union-Tribune said earlier this year that its advertising revenue had dropped 40 percent since 2006.

Newsroom employees greeted the sale news with some optimism, hopeful that the new owners would provide direction and a plan for how the paper can operate into the future.

"There hasn't been any leadership, we've had an absentee owner for a long time, now someone's going to come in and try some new things," one employee said, speaking on condition of anonymity. "I think that makes people cautiously optimistic."

In a morning meeting, Winner told the newsroom the sale was "terrific news," specifically highlighting the closure of the Rocky Mountain News and Post-Intelligencer as evidence that it could've gone otherwise.

Analysts doubted that the Union-Tribune would have closed, though, because the situation here was different. Denver and Seattle still have a daily newspaper. The ones that closed were operated as part of joint operating agreements — effectively functioning as independent newsrooms that shared presses and business operations with their competitor.

The Union-Tribune is "still a big paper and still the dominant voice in the community," said Dean Nelson, director of the journalism program at Point Loma Nazarene University. "So it's not like they're in the same spot as the Rocky Mountain News or the Seattle P-I that just had to roll over and say there's only room for one in this town. They're still the one. Maybe in this diminished state that they are (in), this Platinum group will hold the line. But can they turn it around? No."

The Union-Tribune's future will in part be shaped by David Black, the owner of Black Press, a Canadian media company that owns 150 newspapers in the United States and Canada, including the Akron (Ohio) Beacon-Journal and Honolulu Star-Bulletin.

Barnhill, the Platinum Equity spokesman, said in an e-mail that it was premature to discuss Black's specific role in the company.

"He brings valuable industry perspective, and will play a key role in helping us develop — in collaboration with the U-T's management team — the go-forward plan for the business," Barnhill said.

Doctor said that will probably bring further staff cuts at the newspaper, which has trimmed at least 74 employees from a newsroom once estimated around 360 staffers.

"San Diego is really just a little big city to David Black," Doctor said. "It's all about local, about having lower-paid, fresher-faced reporters covering lots of local stories, writing like crazy, reducing the headcount, the cost of content creation — reducing costs across the board."

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