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Thursday, June 26, 2014 12:01 am

Bullish on GateHouse?

SJ-R owner back on buying spree

 GateHouse Media, parent company of the State Journal-Register, is back in a buying mode, having recently made a deal to acquire the Providence Journal in Rhode Island, according to recent media reports.

The price, according to stories published by New England media outlets, is between $50 million and $60 million. Where did GateHouse come up with money to plunder yet another newspaper? After all, the company, which has never had a profitable year and last fall shed more than $1 billion in debt via bankruptcy, saw its stock plummet from $20 a share when it went public in 2006 to less than a quarter within two years. It was trading at a nickel or so before the company pressed the reset button last year via bankruptcy court.

GateHouse is known for handing out pink slips like so much candy at newly acquired properties and shutting down printing presses and copy editing desks at newspapers in favor of centralized operations. The State Journal-Register, where employee parking lots are half-empty, is no exception.

“You seen Goodfellas?,” asks one former GateHouse employee. “GateHouse is like Paulie when he buys that guy’s restaurant, runs up bills on the joint’s credit, then has Joe Pesci burn it down when he can’t extract any more money from it.”

GateHouse is no longer a publicly traded company. It is now under a holding company called New Media Investment Group, and the new company, which began trading on the New York Stock Exchange in February, is apparently serious about investing, or at least spending borrowed money to buy newspapers with declining fortunes (the Providence Journal, for instance, sold for $1.5 billion in 1997).  On June 4, less than two weeks before the Journal deal was reported, New Media Investment Group announced that it had secured a $200 million bank loan and $25 million line of credit. Some will be used to refinance debt and some will be used “for investments and other corporate purposes,” according to the company’s written announcement.

At least in the early going, New Media stock has done well since it began trading in February for $10.35 a share. It has gone as high as $15.79 (in April) and was trading at $13.19 on Tuesday. Not bad for a company that has never made an annual profit and reported a net loss of $6.7 million for the first quarter.

What gives?

Although revenue is in decline, the rate of decline has slowed for five consecutive quarters, company officials told analysts last month during a first-quarter conference call. Revenue from print advertising fell by 8 percent, but money from subscriptions, the largest revenue category which accounts for nearly one-third of the company’s revenue, is stable, New Media CEO and former GateHouse CEO Michael Reed told analysts. Meanwhile, New Media has big hopes for Propel, a digital advertising business that helps business owners market their companies on the Internet. Launched in 2012, Propel generated $3.8 million in revenue during the first quarter, a tiny percentage of the company’s $142 million in revenue, but the upside is huge, Reed says.

“We have over 1.6 million businesses in New Media markets, so our penetration rate with our Propel business is still less than 1 percent, which gives you an idea of how much opportunity lies in front for us,” Reed told analysts.

New Media expects to pay dividends to stockholders while spending as much as $300 million on acquiring properties, according to company officials. GateHouse tried the same thing, borrowing more than $1 billion and overpaying for scores of newspapers, including the State Journal-Register, and the debt proved crushing. This time, Reed told analysts, the company is looking for bargains.

“We will be value buyers and seek opportunities,” he said during last month’s conference call.

It sounds good to Jason Stewart, an analyst for Compass Point Research & Trading LLC in Washington, D.C., which has set an $18 target price for New Media stock.

After meeting with Reed and Greg Freiburg, chief financial officer for New Media, Compass Point last week issued a rosy report on the company. Dividends, according to the report, should be between 20 and 25 cents per share. Such “small tweaks” as consolidating print operations or combining newsrooms can make a difference in the bottom line, Stewart said in an interview.

“We are bullish,” Stewart says. “We’re seeing more stabilization in the newspaper business.”

Contact Bruce Rushton at brushton@illinoistimes.com.

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