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December 26, 2006
Strib Goes In A Half-Price Fire Sale

The Minneapolis Star Tribune got sold by its owner, the McClatchy Company, for half of what McClatchy spent to buy it. A private investment group with other media interests will take over its operations in the next few months:

A private equity firm has reached an agreement to buy the Star Tribune from the McClatchy Co., publisher Keith Moyer announced today.

Avista Capital Partners, an investment group focused on media, health care and energy companies, will pay $530 million for the newspaper, which Sacramento, Calif.-based McClatchy bought from Cowles Media Co. in 1998 for $1.2 billion. Avista has offices in New York and Houston.

The deal is expected to close formally sometime in the early spring. Chris Harte, a member of Avista's advisory board, will serve as chairman of a board overseeing the Star Tribune. Harte is a former publisher of newspapers in Akron, Ohio; Portland, Maine and State College, Pa.

The value of McClatchy management can be measured in the substantial loss the company took to unload the Strib. It lost $670 million on a $1.2 billion purchase, making the Avista group the beneficiary of a half-off sale.

McClatchy CEO Gary Pruitt claimed that the sale benefits his company because it can then take the loss against its taxes. He said that the newspaper had generated a billion in revenue over its eight-year period of ownership, and that the Strib was the only newspaper it could see for a large loss at a time when McClatchy needs the tax relief. However, it's difficult to understand why any company would dump an asset that generates an average of $125 million per year for essentially four years' worth of revenue, taxes or not -- and he didn't explain why the Strib's value tanked so badly during their stewardship.

Avista hasn't learned from McClatchy's experience, at least not so far. They have so far insisted that they will keep the current management team intact, minus Anders Gyllenhaal, who leaves at the end of the month for the Miami Herald. Bear in mind that this management team took the paper from a $1.2 billion outfit to a $530 million K-Mart blue-light special. Not much can be gleaned about their intentions from their website, but if they stick with the same management as before for very long, one can assume that Avista might need the same kind of tax breaks that McClatchy just got. (h/t -- CQ reader and good friend L)

Addendum: L reminds me that McClatchty had to sell the St. Paul Pioneer Press when it bought Knight-Ridder chain back in March, due to antitrust concerns. That decision looks rather foolish now, doesn't it? Especially since one of the reasons that they have to sell the Strib now is to pay down the debt from the purchase of KR.

Incidentally, this can't be blamed on the general decline of the newspaper industry. Certainly one might expect that the value may have declined over the last few years, but the industry has not lost over half its valuation. This fire sale comes as a result of the mismanagement and editorial disaster that the Strib has become. Despite having some talent, the Strib's editors have turned it into a laughingstock as an objective journalistic endeavor. The sale price confirms the embarrassment that our local newspaper has become.

UPDATE: Be sure to read what Power Line has to say about this sale, as well. None of us can figure out why a company would want to sell off a large asset at more than a 50% loss, even for tax purposes. Meanwhile, Fraters Libertas' Saint Paul calls the sale "A New Hope" -- appropriate, because the Strib under McClatchy could have been called the Phantom Menace.

Sphere It Digg! View blog reactions
Posted by Ed Morrissey at December 26, 2006 8:40 PM

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