Posted by: Aaron Pressman on October 25, 2006
I felt a little frisson of anger this morning when I noticed the latest hot IPO from leveraged buyout world: GateHouse Media (Symbol: GHS). The company priced 13.8 million shares (a couple million more than expected) at $18 (the high end of its range) for an almost $250 million take and an implied market cap of over $600 million. Trading started at $21.60 this morning — a pretty nice pop for a company with operating income of less than $14 million for the first half of this year and an operating loss of almost $9 million, thanks mainly to interest payments. A money-losing newspaper company investors want to own? Shouldn’t this be a beacon, a rallying point, a moment of joy for all of us in the media biz? Not exactly. GateHouse runs the kind of weeklies that give local journalism a bad name.
It’s no surprise that the deal marks yet another “liquidity event” for an LBO firm, in this case Fortress Investment Group. Maybe the surprise is that, unlike some of the piggy-er deals of ’06, Fortress extracted a pre-IPO dividend of just $8.8 million (recall Hertz’s LBO owners and their $999 million pre-IPO payday).
The source of my anger actually is a lot closer to home – well, it is home. And, paradoxically, it’s also the source of GateHouse’s unlikely success in a world where newspapers in general are shrinking like mad.
In my little suburb west of Boston, we rely on one of GateHouse’s 423 weekly newspapers for almost all our information about town events and town politics. I’m a town meeting member, meaning I join a few hundred fellow elected folk twice a year to decide on town policies and the budget for things like schools, road repairs and the fire department. I occasionally hear from people who live in my district but most of our town's give and take, the virtual water cooler or town square, takes place in the pages of the local weekly newspaper.
And, oh, what a paper it is. Though its coffers are flush from ads run by local merchants and real estate brokers, the paper isn't producing much quality journalism. There seem to be only two overworked reporters to cover everything in town, leading to frequently misleading and incomplete stories about the town’s finance and projects. Voters end up confused and even angry about decisions that didn’t actually take place or spending that wasn’t as reported.
But despite my qualms, despite the inaccuracies, despite the rise of blogging and micro-media on the Internet, our town paper remains at the center of everything. An email post this morning from Dan Primack, editor of Private Equity Week, who was also reacting to news of a possible Boston Globe buyout by Jack Welch, crystallized the entire situation:
Community newspapers succeed because they provide a one-stop source for information not available elsewhere. There is little in today’s Boston Globe that can’t be found elsewhere (particularly online – where the paper remains inexplicable free-of-charge) – but the average community paper includes all sorts of offline items like school lunch menus, church picnic dates and Little League scores. Craig’s List simply isn’t opening a Framingham, Mass channel anytime soon. Emerging companies like SmallTown.com may eventually begin to eat into local publishers, but any critical mass is a long way off. So, for now, I’d rather have a public piece of GateHouse than a privatized piece of Tribune or Globe.
P.s. One red flag before you ignore my worries about the quality of our democracy and leap into Dan's full capitalist profiteering mode: According to the company’s S-1 filing, auditors found two “material weaknesses” in internal controls relating to accounting and restructuring for mergers.