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April 3, 2009, 3:07 p.m.

How to restructure MediaNews into a digital enterprise with a future

singleton1Not very surprisingly, my former employer, MediaNews Group, is in workout.  Surprisingly, this could turn out to be an opportunity to craft a truly new kind of news enterprise.  Bear with me.

As reported first by the New York Times, later in the Wall Street Journal and in the Denver Business Journal, the country’s fourth-largest (by circulation) newspaper publisher has won a forbearance agreement from the lenders to which it owes $1 billion, plus or minus spare change.  The lending group, led by Bank of America, is allowing MediaNews to skip its March 31 debt payment while it “attempts to reorganize its capital structure.”

This confirms that MediaNews is in default — forbearance agreements are designed to postpone foreclosure, and lenders don’t threaten to foreclose unless the borrower is in default of one or more loan covenants.  Covenants breaches can entail failure to maintain certain balance sheet ratios rather than actually being short of cash, but they’re serious issues and call into question the ability of the enterprise to maintain its “going concern” status.

As it happens, I’ve had the personal pleasure of going through the workout process (in connection with the travails a small newspaper group now owned by MediaNews), and it’s not fun. I’m sure MediaNews CEO Dean Singleton (that’s him in the picture) never thought he’d find himself in this situation.

So, how do you restructure $1 billion in debt?   The workout team at Bank of America will be looking for cash — as much cash as the banks can get to pay down the notes.  Ultimately, the banks may need to take a haircut (write down the value of the loan), but first they’ll squeeze as much cash out as can be gotten.  Usually in these situations, cash is raised by selling assets, but MediaNews’ assets consist mainly of newspapers, and newspaper buyers are non-existent today, for all practical purposes.  The banks know this, Dean Singleton knows this, so what’s the solution?

In my mind, rather than trying to sell individual newspaper properties at fire sale prices (which might get the banks 10 or 20 cents on the dollar), the company should slice itself into horizontal business units, which would raise cash while creating a truly digital enterprise capable of moving forward and paying off a discounted level of debt.  Here’s what the restructuring would entail:

  • A sale of the company’s printing plants, packaged with its considerable commercial printing customer base.  Some of this infrastructure is aging, but the company has built some state-of-the-art plants in recent years.  These assets would be attractive to various regional printers looking to expand.
  • A sale of all other real estate, perhaps with partial leasebacks.  The core digital enterprise to be retained won’t need all that office space.
  • A sale of all non-newspaper assets, like its Anchorage TV station and Texas radio stations.
  • A restructuring of the remaining business as a fully digital, online-first news organization operating in all of the company’s existing markets, with strategic options to expand into neighboring markets.
  • A separation, Cedar-Rapids style, of the content creators and online editors from the print product creators.  (As Gazette Communications is discovering, this is a monumental culture shift, but an essential one for every news enterprise to get through.)
  • A reduction of publishing schedules in all markets to one or two days per week.  Most of the advertising currently spread across six or seven publishing days can be nudged into one or two editions that are profitable.  In the status quo, even the profitable newspapers are losing money several days a week — something that’s not often analyzed or monitored.
  • A five-day commuter-style tabloid in selected markets like Denver, the Bay Area and Salt Lake City.
  • A slew of niche publications with both original and repurposed content.
  • Exploration of opportunities for paid online content, not for the core news content now being published, but for new high-value content areas that can be developed out of the new content creation group.

On the sinister side, all of this could be done by completely liquidating the existing company, laying everyone off and rehiring selected troops into one of several new companies, as is being done in Ann Arbor.  This might provide an opening to negate union contracts, and given the less-than-cordial historic relationship between MediaNews and its unions, that tactic is entirely possible.  And who knows, perhaps it’s preferable to the current regime of furloughs, layoffs, concession demands and other chiseling.

The economy will not come riding back to rescue MediaNews, or any other newspaper publisher, even when the current slump comes to an end.  The problems are permanent; they transcend the business cycle; the revenue decline (as a share of total U.S. ad dollars) has gone on for 50 years, and only a fundamental reinvention of the business provides any hope of saving it.

There’s a small chance that MediaNews will be bold enough to attempt this kind of radical scenario, and then there’s an even smaller chance that it would succeed.  But without the attempt, the company is staring across the Bank of America’s workout table at bankers who want to get paid, and get paid soon; who are not concerned about journalism or communities or employees; who will be satisfied with 20 cents on the dollar in a simple breakup scenario if the company can offer no strategic plan to navigate its way to a higher valuation.  It’s worth a shot.

POSTED     April 3, 2009, 3:07 p.m.
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