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To deal with the upcoming maturity date, Lee said on April 11 it would sell debt of $1.06 billion through bonds and loans payable in six to seven years. Even when Lee tried to sweeten the offer, the junk bond market wasn’t interested unless investors could get higher interest rates than Lee was willing to pay. So Lee withdrew the plan after three weeks. Junck, in a letter to stockholders, said market conditions were not favorable because of “recent bumps in the economy and a slowdown in revenue recovery for the industry and Lee.”
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It’s always a run to cut journalistic quality, but sometimes companies feel they have no choice if survival is at stake. Look at what McClatchy did, for an example of a company with a reputation for solid journalism . . . burdened by high acquisition debt, or what Tribune did before it slipped into bankruptcy, or what even a private, unthreatened company like Cox Enterprises did in Atlanta and some of its other papers, not to mention unloading a raft of them. It has not been a happy time for newspapers.
– John E. Morton, of
The Wall Street Journal reported that “junk bond” traders were not interested in the Lee debt and some of the Lee loans had fallen into the hands of so-called “vulture” investors who hope to take ownership in the company, possibly selling off assets, if Lee was is unable to pay off its debt. “‘Vultures’ really defines a type of investment behavior rather than a particular type of investing company,” Morton said. “They usually are hedge funds, but not always, but in any case they circle troubled companies whose debt has been devalued and try to buy up as much of it as possible in the expectation they will wind up owning assets with a lot more value than what they paid for them. That’s why some of them were outraged when Lee tried its bond strategy, because if it had worked they would have profited much less than they had planned (although they would have profited).” Lee had a dismal second quarter, ending in March, with a $1.47 million loss. It had a $3 million profit in the March quarter of 2010. The company said profits were hurt by the fact that Easter came 20 days later this calendar year,
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It’s been a rough road for Lee because of advertising and circulation losses it suffered since it bought Pulitzer Inc., including the St. Louis PostDispatch, in 2005 for $1.46 billion. Lee refinanced its debt in 2009 to get some breathing room, and it continues to pay down the debt with its cash flow.
reducing profits it normally sees in advertising in the weeks before Easter. Still, a June 12 Wall Street Journal piece that promoted bullish behavior in newspapers, warned investors off Lee Enterprises and McClatchy. A July 1 Zacks Investment Research piece (http://www.zacks.com/research/get_ news.php?id=182l2821) called Lee stock one of today’s worst performing penny stocks and mistake in the long did not advise investors to buy. While some financial commentators predicted a possible dire outlook for Lee, following the scrapping of the bond plan, Junck remained upbeat, even buying the 100,000 shares. (They dropped in price from $1.06 she paid to 82 cents by June 23. The 52-week high was 3.47). “Refinancing our debt remains among our highest priorities,” Junck wrote in a letter to stockholders. “We continue to pursue alternatives and fully expect to refinance our long-term debt before it matures in April 2012. … We are not, as some in the national media have imagined, staving off bankruptcy.’’
Junck predicted that “revenue trends will improve again as Morton Research Inc. economic conditions in our markets also improve.” The company says that with a few good quarters it can seek better terms to refinance its debt. She said Lee will take steps to improve revenue and “we are also tightening our belts.” Since acquiring the Post-Dispatch, Lee has eliminated a third of its staff, cut wages, reduced the size of the paper, scrapped its pension plan and ended health benefits for retirees. It recently shed another 28 employees, mostly through layoffs. “It’s always a mistake in the long run to cut journalistic quality, but sometimes companies feel they have no choice if survival is at stake,” Morton said. “Look at what McClatchy did, for an example of a company with a reputation for solid journalism . . . burdened by high acquisition debt, or what Tribune did before it slipped into bankruptcy, or what even a private, unthreatened company like Cox Enterprises did in Atlanta and some of its other papers, not to mention unloading a raft of them. It has not been a happy time for newspapers.” Roy Malone is a retired Post-Dispatch reporter, editor of the former St. Louis Journalism Review and now St. Louis editor of the Gateway Journalism Review.
New and improved, tech-savvy Big Brother is watching you W i l l i am H. F r e i vo g e l STANFORD — If it weren’t already 2011, one might think it was 1984. Listening to the venture capitalists and Web techies who gathered in May at Stanford University to peek around the next curve of the information highway, one would think George Orwell’s imagined world was upon us. In a conference on “Legal Frontiers in the Digital Media,” participants described the “gamification of the world” where people build community by building barns together in FarmVille. They explained technology that watches the computer users’ eyes and fingers to make searches more effective and eventually to influence the users to click desired product. They spoke of the advantages of customized searches that provide people the information they want, if not the information they need.
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Worse than Madison Avenue, to the eyes of the venture capitalists, were the government regulators who inhibit innovation. It’s information startups, not the government, that will solve the problems of the future, they predicted.
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revenue numbers — the declines in percentage terms are about half the declines most companies report. St. Louis, of course, is the clunker in this, which is the genesis of the layoffs, etc. Actually, St. Louis fared better than most large city papers if it eliminated only a third of its staff. Most (papers) cut by half or more.”
They waxed philosophical, observing that people with smart phones can’t sit by themselves and just think like people once did. Instead, people have to be fiddling with their phone 24/7, using it to mediate the world around them.
Draper was a member of a panel of brash venture capitalists who showed no mercy for the lawyers and media executives gathered in the heart of Silicon Valley to discuss the legal frontiers of the “wireless ecosystem.”
They foresaw an ever-growing “creator” economy where Facebook will be bigger than Google and where even bigger tech giants will emerge built around an idea that monetizes a single click of the mouse, much as Google monetized the short phrase of a search request.
The one conventional pundit on the panel was Chris O’Brien, a business and technology columnist for the San Jose Mercury News. O’Brien was not as sanguine about the infallibility of the men from Sand Hill Road. He has lived technological change as his paper’s staff of 420 has dwindled to around 100. He thought that the tech bubble on the stock market was proof that the markets had their own inefficiencies.
They ragged on traditional media monopolists and Madison Avenue, saying the latter was always a decade behind Sand Hill Road, the home of Silicon Valley’s venture capitalists. Worse than Madison Avenue, to the eyes of the venture capitalists, were the government regulators who inhibit innovation. It’s information startups, not the government, that will solve the problems of the future, they predicted. “Skype and Facebook have done more good connecting everybody than all of the do-gooders in government,” said Tim Draper, founder of the venture capital firm Draper, Fisher, Jurvetson. They are responsible for “some of the best things that have happened to our global society in the history of the world and it didn’t come from some government edict.” Other venture capitalists followed up that heady assessment by saying that it was new tech startups that were addressing society’s most pressing problems such as war, education and health care. Warfare is nowhere near as violent as it was in World War I, one said. “Ask your dead grandfather.”
But the venture capitalists didn’t have much sympathy for O’Brien’s predicament or that of other traditional media executive in the room. Eve Burton, vice president and general counsel for the Hearst Corp., asked plaintively for tips about how traditional media companies such as hers could communicate with tech firms about the importance of the content they had to offer the Web. Draper offered no solace. “Major platform changes make it better for the consumer,” he said, but not the traditional media where “the monopolist had end-to-end control” of content. The venture capitalists delighted in making the lawyers, regulators and media executives shift uncomfortably in their seats.
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