Two once-formidable newspaper companies – Journal Register Co. (JRC) and Sun-Times Media Group (STMG) – have recently been delisted from the New York Stock Exchange and said they are “exploring strategic alternatives.” What exactly does that mean?

Sometimes, alternatives include ways to keep the business going, such as restructuring debt or selling assets. They can also include more radical actions such as a management buyout. More often, though, this term is code for “find a buyer.” The owners hope to get something – anything – out of their investment.

This is almost certainly the case for these two media companies. JRC traded at nearly $20 per share less than three years ago, and STMG was in that range in late 2004. Their current sub-50-cent prices probably have investors panicked.

Likely scenarios

When a company puts itself up for sale, there are typically two kinds of buyers. One is competitors in the current market, who see the opportunity to consolidate their positions and gain economies of scale. That’s unlikely in this scenario, however, because all the media companies are under debt pressures of their own. The other buy is typically a professional investment firm that has the resources and expertise to maximize the value of the distressed company’s assets. That’s the most likely outcome here.

In almost all cases, the professional investment firm carves up the company into pieces and sells them off. They can quickly make huge amounts of money from realizing the value of the parts. These investors aren’t long-term players. They generally hold an asset for a couple of years at most and then walk away.

The buyers of the piece parts usually do one of two things. They either cut costs dramatically with the intention of wringing whatever profits are left out of the company or they try something radically new. In the case of the newspapers that are likely to be sold in the JRC and STMG deals, the final buyers may be former employees, local businesses or other investment groups. Because the new owners get these assets for pennies on the dollar, they’re often free to try interesting and innovative things.

Silver linings

This could be the silver lining in this whole financial mess. By the time the dust settles, the newspapers in these two companies’ portfolios may look very different from what they are today. Some might reduce frequency and drive toward a fully online model, unencumbered by the expectations of investors. Basically, the owners have little to lose. That’s where we might see some truly innovative models develop. In a worst-case scenario, the buyer is an investment firm that simply manages the asset into the ground in hopes of getting back more than it put in.

This process is enormously stressful for employees. Many can look forward to two or three rounds of ownership in the next few years. This often drives the best people away. By the time an owner takes over with a plan to grow the property, all that’s left is a shell of a workforce. Rebuilding often requires tearing apart the old, though, and asset sales are one of several ways to do this.

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This entry was posted on Sunday, May 11th, 2008 at 7:55 am and is filed under Fake News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.