Newspaper Companies: Who's Next?

The short answer: maybe Gannett. To a lesser extent, possibly Journal Register.

The realer answer: probably nobody, at least for now.

Most of the publicly traded newspaper companies either have A/B stock structures that allow a family to retain control, or have family trusts that hold enough stock to achieve the same thing. In this camp: Dow Jones, Lee Enterprises, New York Times Co., Scripps, McClatchy, Washington Post Co., Media General, Belo.

Here’s two companies that don’t have this kind of control: Knight Ridder and Tribune. We know what happened to the first and we know what’s happening with the second, even though a company-controlled trust has around 13% of Tribune’s shares and various insiders have an additional 9%.

Two more with open stock structures like Tribune and Knight Ridder: Gannett and Journal Register Co.

Gannett and Journal Register are sort of the polar extremes of the public newspaper companies. Gannett is the biggest in the country, with total revenues of $7.6 billion and newspaper revenues of $6.4 billion (they have a UK division, but the vast majority of these dollars came from US operations) last year. It’s not a company skewed towards big-city papers by any stretch, but it’s got USA Today and the Detroit Free Press. Journal Register last year did $538 million in revenues, almost all of which comes from smaller market papers. Its largest daily is the New Haven Register, which has a circulation around 97,000.

Since June of last year, Gannett’s stock is down around 25%. Journal Register’s stock closed at $9.54 on June 14, which practically halves the $17 range it hit in June of last year.

They are two companies noted for their attention to costs. Double- underscore this for Journal Register, which generally is conceded to be the #1 Company You Least Want To See Buy The Paper Where You Work. This means there’s less for a buyer to squeeze out of the companies in the event of a purchase. (Tribune is no piker when it comes to holding down costs, but that the company itself says it plans to cut costs by $200 million may leave some thinking there’s even more to be done.)

The top two shareholders of Journal Register are Ariel Capital Management and Private Capital Management; the latter are the guys who lit the fuse for Knight Ridder. As of the end of March, they controlled around 43% of Journal Register’s stock. This means that Journal Register prays each night that the management of Ariel and PCM wake up on the right side of the bed every day, since if one of them gets starts making noise it doesn’t take much more to put the company in play. But a veteran stock analyst I spoke with today found Journal Register a less attractive target than Knight Ridder or even Tribune, owing in part to how tightly the company operations are and in part to the small markets it operates in.

The top shareholder of Gannett is—surprise—Private Capital Management. But PCM only has 6.7% of the stock, as of March 31. The sheer size of the company and the fact that no other shareholder controls more than 5% of the stock make for a very different situation from Knight Ridder, where only a few ticked-off shareholders held something like 30% of the shares.

Still, the stock performance has been terrible and it’s got lots of interesting broadcast and newspaper assets.

In sum: I suspect investors are watching the Tribune situation, and also the body language of Private Capital Management majordomo Bruce Sherman, very carefully

And if Tribune is soon split up and investors get bolder, Gannett’s and Journal Register’s situations become a lot less safe.

Before it's here, it's on the Bloomberg Terminal.