Washington Post Sale Lets Company Face Education Challenges

Washington Post Co. (WPO)’s sale of its flagship newspaper to billionaire Jeff Bezos rids the company of its weakest division, letting it focus on a once high-flying education business now beset by government scrutiny.

The Washington-based company draws about 55 percent of its $4 billion in annual revenue from its education unit, including its Kaplan chain of for-profit colleges, whose sales tumbled 9 percent to $2.2 billion last year.

Like its competitors in the education industry, the business faces increased oversight into marketing, student-loan defaults and job-placement claims. Still, the challenges weren’t as daunting as those of the newspaper division, where revenue has shrunk for seven straight years. There wasn’t anything more the company could do to save the storied Washington Post from the print-media industry’s decline, Chairman Don Graham said.

“We’ve tried,” Graham said in an interview after announcing the sale of the newspaper yesterday. “We have innovated very successfully in terms of building audience, in terms of our reputation and in terms of our products, but not in terms of offsetting the decline in revenues.”

The sale to Bezos will add $250 million to the company’s coffers, and it spurred a share gain of 4.3 percent to $593 today. Even so, management won’t have an easy task as they turn their attention back to education. Concern about escalating student debt in a sluggish economy is hurting enrollment, and the company is dealing with more competition from traditional institutions.

Frank Discussion

The Washington-based company reported a total revenue decline of almost 3 percent last year to $4 billion, while posting a 56 percent drop in operating income.

At the end of 2012, Graham said he had a frank talk with Post Publisher Katharine Weymouth, his niece. They discussed whether they were the best owners for the Post at a time when the newspaper industry was being forced to adapt to the rapid changes brought on by the Internet.

“We asked each other whether there might be some person or company out there who could bring something different,” Graham said. “None of us -- me, Katherine -- in the family wanted to sell.”

Even so, they wanted to give the Post “the maximum chance for success,” according to Graham, and decided to go ahead with a plan.

Bezos Interest

The company hired Allen & Co. to handle the sale process, with the investment bank’s Nancy Peretsman leading the effort. After reaching out to a handful of potential buyers, Bezos expressed interest early this year, according to Graham, who declined to name other suitors.

Graham said he’d known Bezos for at least a decade and a half, consulting with him on technology questions facing the company. As chief executive officer of Amazon.com Inc. (AMZN), Bezos has worked with publishers to develop the Kindle e-reader.

“I had thought early on that Jeff would be a wonderful buyer, but I didn’t expect him to come forward because he’s so single-minded about his company,” Graham said.

After a few months of silence, Bezos sent Graham an e-mail last month to discuss the acquisition.

“Obviously he’d been thinking about it. This wasn’t a sudden or impulsive decision,” Graham said. The deal was eventually clinched in two face-to-face meetings in early July between Graham and Bezos at Allen & Co.’s annual media conference at Sun Valley, Idaho.

Media Breakups

Washington Post Co. is just the latest newspaper company to cut ties with the print-media business. Tribune Co. announced plans last month to spin off its papers from the company’s TV operations, and News Corp. split up into publishing and entertainment divisions in June.

Time Warner Inc., meanwhile, plans to spin off its Time Inc. magazine empire this year. That will let it focus on its cable networks, including HBO, TNT and TBS.

Washington Post Co. also has tried to diversify its business by expanding into wide-ranging markets. Last month it agreed to buy Forney Corp., a maker of gas and oil igniters, and invested in FaithStreet.com, a website that helps people find a church. Last year, the company announced plans to buy a seller of hospice services. Washington Post Co., which plans to rename itself after the sale to Bezos, also will retain cable systems and broadcast TV stations, as well as websites such as Slate.

Restructuring Ahead?

The education market still makes up the majority of the company’s sales, leaving it vulnerable to a tougher regulatory climate. Last year, Kaplan said it stopped signing up students at nine campuses and was folding four others into nearby locations.

Kaplan Higher Education’s revenue fell 12 percent in the first quarter, and the company said it is evaluating its cost structure and may incur more restructuring charges this year.

The Post sale at least takes some pressure off the rest of the company, and Bezos is seen as a buyer who can preserve the asset, said Ross Levinsohn, CEO of Guggenheim Digital Media, who sits on the board of Tribune Co.

“It’s a wonderful result for an institution like the Washington Post,” Levinsohn said.

The Graham family’s decision to sell the Post puts a spotlight on the Ochs-Sulzberger clan, which controls the New York Times, said Ken Doctor, a media analyst with research firm Outsell Inc.

New York Times Co. agreed to sell the Boston Globe to Red Sox owner John Henry last week. The question now is whether it tries to sell the flagship Times newspaper as well, given the worsening landscape for print media, Doctor said.

“With the Post sale, you have to wonder about the Sulzbergers,” he said. “Do the Sulzbergers have the financial wherewithal and the emotional capacity to do what needs to be done? Without that, the logical decision would be to find someone like a Bezos for the Times.”

To contact the reporters on this story: Edmund Lee in New York at elee310@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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