The latest McClatchy Co. filings give us a window into the Times' tightly held finances, and the picture isn't pretty: a decline of 12 percent in value for its stock in the past six months. Some of that is the new Joint Operating Agreement kicking in, but the problems run deeper than that.
Let's say one of Seattle's major high-profile businesses had lost more than two-thirds of its value over the last 18 months. Would The Seattle Times, which boasts an aggressive business staff, be all over the story? You bet. But here's some business news you are not likely to read first in Seattle's largest daily.
The value of McClatchy Company's share of The Seattle Times Co. -- owner of The Seattle Times and other newspapers in Washington and Maine, Rotary Offset Press in Kent, Wash., web sites, and real estate holdings in Seattle and elsewhere -- is dropping like a stone, according to valuations put on the Times' share held by McClatchy Co.
As a privately owned company, the Times does not have to make its finances available to the public. And it doesn't, although its reporters often dig into other privately held companies. But the Times' minority owner, McClatchy Co., is publicly traded and must make its financials public in federal securities filings every three months.
Last Friday, McClatchy reported to the Securities and Exchange Commission that the value of its 49.5 percent share of the Seattle Times Co. dropped 12 percent between January 1 and June 30. McClatchy, the nation's third-largest newspaper chain, put the Times Co.'s carrying value on its books at $89.9 million, down from $102.2 million at the end of 2006. That valuation probably reflects the losses McClatchy is getting from its investment and the discounted value of a minority stake that has little say in operations of the paper. The value of the full interest in the newspaper is doubtless more than double the McClatchy valuation for its 49.5 percent stake.
When McClatchy bought Knight Ridder in late 2005, inheriting its Seattle Times Co. stake in the deal, Knight Ridder's investment advisor, Morgan Stanley, valued the Times' minority share at $286 million, 68 percent higher than the current McClatchy valuation. McClatchy says it valued its Times Co. stake at $102.2 million. Elaine Lintecum, McClatchy's Treasurer, said in an interview that the company's valuation was done by its own appraiser.
The latest 12 percent drop was spurred by the settlement in April of the long-running joint operating agreement (JOA) dispute between the Times Co. and Hearst Corp., owner of the Seattle Post-Intelligencer. Under the settlement, the Times Co. and Hearst exchanged multi-million-dollar checks, with the Times Co. ending up paying Hearst $24 million to drop its four-year lawsuit blocking the Times from exiting the JOA and in effect shutting down the P-I.
The Times Co. and Hearst have declined to elaborate on how the payments were structured. But according to McClatchy's SEC filing, the Sacramento-based media company wrote down $7.8 million of its Times Co. investment to cover its share of the Times Co. payment to Hearst. After tax benefits from the payout, the settlement actually cost the Times Co. about $15.7 million, Lintecum said.
In an interview, Lintecum said the remainder of the 12 percent drop in the value of McClatchy's stake in the Times Co. was primarily due to Times' losses during the first six months of 2007. "The value of our share of the Seattle Times Co. will go down as we record losses from them and it will rise as we record income from them," Lintecum said.
True, but McClatchy, like much of the rest of the publicly owned newspaper industry, is under severe pressure from its shareholders -- it closed at $23.24 a share today, off nearly 44 percent from its $41.26 share price at the beginning of the year. The Times Co., which had to borrow to pay off its settlement debt to Hearst, and which signed away its right to bail out of its money losing JOA with the P-I until after 2016, is not likely to help McClatchy's fortunes any time soon.
McClatchy currently has not announced any plans to shed its Times investment, Lintecum said. "We haven't made any indication of being dissatisfied with that investment and we're not making any now," she said. "We're happy with our Times investment right now."
A Times Co. spokeswoman said the company was not involved in either the Knight Ridder or McClatchy valuation of its minority holding. She declined to comment on those valuations or details of the settlement with Hearst.