Major small newspaper chain is for sale

Auction of Liberty Group's 300-plus properties likely to bring up to $600 million

August 06, 2004|By Leon Lazaroff | Leon Lazaroff,CHICAGO TRIBUNE

Liberty Group Publishing Inc. of Northbrook, Ill., owner of the Chicago Suburban Newspapers chain and 300 other community newspapers in 15 states, has put itself up for sale.

The auction is expected to draw bids of $500 million to $600 million, roughly 10 to 12 times the company's annual earnings before interest, taxes, depreciation and amortization, said representatives of media investment firms that received information about the sale a week ago.

The sale comes at a time when demand for smaller properties is high. As a result of a June court decision that overturned the Federal Communications Commission's rules for media consolidation, newspaper companies remain reluctant to acquire large media properties with broadcasting properties that could be rejected in the future.

"No one knows what the rules will be, so rather than take chances, the industry is very focused on these community newspapers and shoppers," said Douglas Arthur, a media analyst at Morgan Stanley.

Kenneth Serota, Liberty's chairman and chief executive, and Peter Nolan, a managing partner at Leonard Green, would not comment on the potential sale of the publishing group.

In 1998, Hollinger International Inc., owner of the Chicago Sun-Times, sold Liberty Group Publishing to the Los Angeles leveraged-buyout firm Leonard Green & Partners for $310 million. Leonard Green had planned to take Liberty public two years ago until the market for initial offerings dried up.

Liberty's newspapers and shoppers, based almost entirely in semi-suburban and rural areas, are seen as attractive because they face little competition for local advertising dollars and produce consistently high cash flows.

Though nearly none of Liberty's community newspapers have a circulation of more than 20,000, the group posted 2003 sales of close to $189 million on a readership of about 2.3 million per week.

Chicago Suburban Newspapers comprises 37 weekly and twice-weekly newspapers, the largest of which is the Downers Grove Reporter.

Though most agree it is more likely that one buyer would be found for Liberty's newspapers, the group could be divided regionally. Liberty's newspapers are concentrated in states along the Mississippi River, the Northeast and the Southwest.

"These are attractive properties that major newspaper companies would want to add to existing clusters that fit within their geographic orbits," said John Morton, an independent newspaper consultant based in Silver Spring, Md. "Then again, some might want them to create new clusters."

That's what happened last month when Journal Register Company, owner of the New Haven Register, paid $415 million in cash for 21st Century Newspapers Inc., a cluster of four-daily newspapers and 74 shoppers in northern Michigan and the Upper Peninsula. Twenty-first Century was formed in 1995 by a partnership that included Goldman Sachs Capital Partners II and Kelso & Co., a New York private equity group.

As an indication of how much Leonard Green & Partners can fetch from the sale, 21st Century Newspapers sold for $35 million or approximately 11.5 times its earnings before interest, taxes, depreciation and amortization (EBITDA). Roughly $13 million was added to the price of sale for certain net operating losses.

In a similar deal, Wachovia Capital Partners of Charlotte, N.C., and Wicks Group of New York paid about 10 times EBITDA in April for a group of small newspapers in North Carolina and Virginia previously owned by Community Newspaper Holdings Inc. of Birmingham, Ala. The newly formed cluster was named Heartland Publications LLC.

Private equity firms are particularly interested in community newspaper groups because acquiring companies with large cash flows requires less upfront money.

The Chicago Tribune is a Tribune Publishing newspaper.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.