Times Change For TV Group

Sep 18, 2006  •  Post A Comment

The New York Times Co. is going off the air to concentrate on its print and digital businesses.

The company said last week it is putting its nine-station television station group on the block and has hired Goldman, Sachs & Co. to advise it on the sale.

Analysts said the market for local stations is relatively strong and several other broadcasters might be able to use the Times stations to create duopolies in their markets. Creating duopolies-in which one owner controls two stations in a market-is seen as one way of maximizing the returns on broadcast properties.

Debra Schwartz, research analyst at Credit Suisse, said recent station sales have been priced at a cash-flow multiple of about 13 and estimates that a sale of the Times station group would yield after-tax proceeds of $240 million to $280 million.

Industry executives said it was unclear whether the stations would be sold as a group or parceled out individually to try to maximize the return on each individual unit. “We suspect there will be more interest in individual stations versus the group as a whole, as buyers would likely find more value in clustering around existing properties,” Lauren Rich Fine, research analyst at Merrill Lynch, noted in a report.

Looking at the markets where the Times stations are located, Ms. Schwartz sees some companies that might be interested in the stations. “Potential strategic buyers that could form a duopoly with the purchase of an NYT station include Sinclair, Young Broadcasting, CBS and LIN TV,” she said in a report.

LIN, CBS and Sinclair all own stations in Norfolk, which is market No. 42. Sinclair owns stations in Oklahoma City, market 45, and Des Moines, market 73. Young owns a station in Moline, market 95.

The Times said that last year its Broadcast Media Group accounted for about 4 percent of its total revenues, which were $3.4 billion in 2005. The company said it expects the group will have revenues of about $150 million and operating profit of about $33 million. Depreciation and amortization is expected to be about $10 million for the year, the company said.

The Times said it is selling the broadcast group to concentrate on print and digital media. “The decision to explore the sale of our broadcast stations is a result of our ongoing analysis of our business portfolio,” said Janet Robinson, president and CEO of the Times Co., in a statement. “These are well-managed and profitable stations that generate substantial cash flows and are located in attractive markets. We believe a divestiture would allow us to sharpen our focus on developing our newspaper and rapidly growing digital businesses, and the synergies between them, thereby increasing the value of our company for our shareholders.”

Analysts generally approved of the Times Co.’s decision to sell the stations.

“Investors and analysts have often asked about the rationale of owning these stations that are not material to NYT’s overall financial profile,” Ms. Fine said. “We like the attempt at focusing NYT management’s efforts, but from a financial perspective the deal is unlikely to change much, in our view.” Merrill Lynch remained neutral on Times Co. stock.

Ms. Schwartz of Credit Suisse saw a potential upside in the sale in the way the company was likely to use the proceeds from the sales. While noting that management has not said how it intends to use the money it raises, “NYT has been aggressive in building out a digital platform, both organically and through acquisitions,” she said. In late August, Times Co. acquired Baseline Studio Systems for $35 million and in 2005 it bought About.com, an acquisition she said has proven to be highly successful.

“If management uses the proceeds to invest in higher-return digital businesses, we believe this would be a good move,” said Ms. Schwartz, whose recommendation on the stock is neutral.

There have been reports that other newspaper groups, including Tribune Co., have considered divesting their TV stations. According to Ms. Fine, E.W. Scripps said last week that it continually evaluates its TV stations, but isn’t in a rush to sell. Scripps said its stations generate solid free cash flow that can be “invested in newer, faster-growing businesses and help increase viewership on its cable networks.”

Other station sales indicate that the market is healthy.

Raycom Media recently sold 12 stations in nine markets to Barrington Broadcast Group for $262 million, while Media General acquired four stations in mid-size markets from NBC Universal for $600 million. Media General has since been able to sell four smaller stations in its portfolio.