Monday, October 20, 2014

With Cuts, Globe Could Become More Attractive to Potential Suitors
By Keith O'Brien and Steven Syre

For a newspaper that lost $50 million last year and is on pace to lose even more this year, The Boston Globe is decidedly more attractive to a potential buyer today than it was just a week ago, according to financial analysts, who pointed to steep pay cuts and modifications to lifetime job guarantees that union leaders negotiated with Globe management in recent days.

But the $20 million in concessions, as well as the flexibility that the Globe's parent company, The New York Times Co., stands to gain by stripping away some job guarantees, do not necessarily mean that potential buyers will be lining up to own a slice of Morrissey Boulevard, financial analysts cautioned.

Cuts or no cuts, the Globe is still on track to lose money this year, analysts said, and the newspaper industry's outlook as a whole doesn't look any better. As famed investor Warren Buffett said at Berkshire Hathaway Inc.'s annual meeting last weekend, he would not buy a newspaper right now "at any price" - and Buffett owns stakes in two US newspapers.

"If the world's greatest investor says there's no way he would go near a newspaper deal right now," said Mark Young, president of Natick-based Grist Mill Advisors and a financial adviser to media companies, "I think a lot of people pay attention to what he has to say."

The Globe's unions have been negotiating with Globe management for weeks in an effort to meet the Times Co.'s ultimatum: Give $20 million in concessions or face a possible shutdown of the paper. Two deadlines came and went last weekend. But starting early Monday morning, the newspaper's major unions began finalizing proposals to bring to their members, and early yesterday morning the paper's largest union, the Boston Newspaper Guild, became the last to finish negotiations.

Guild leaders, representing more than 600 editorial, advertising, and business office employees, said they do not plan to recommend for or against ratification of the proposal, which includes steep wage and benefit cuts. The proposal will be presented to union members for the first time tonight.

But even if it does receive membership support, said John Morton, a longtime media industry analyst, most potential Globe buyers would still have many doubts about getting into the newspaper business.

"There is a big question about how successful newspapers are going to be in recapturing what they lost in this recession," Morton said yesterday, noting the precipitous decline in advertising revenue in recent years, and, particularly, in recent months. "It's not clear how much newspapers can get back this time."

Profitability questions like these will linger, analysts say, making many people question whether any newspaper purchase makes sense in this climate. But other industry observers say the offers currently pending before Globe unions contain the exact type of concessions that would make a suitor take a second look at New England's largest newspaper.

Key among the concessions is the proposal to modify the lifetime job guarantee protections in some union agreements, said Tom Fiedler, dean of Boston University's College of Communication. The provisions, which the company extended years ago in exchange for other concessions, have protected some 400 Globe employees from layoffs. But many industry observers say potential Globe suitors would balk at such protections, fearing they would hamper reorganization, innovation, or efficiency.

"You can always try to squeeze dollars out of something," said Fiedler. "But to attract somebody to come in, I think you needed to reassure whoever the potential buyer was that that person has the flexibility to make significantly more changes, restructure, or take the newspaper in a different direction."

It is unclear how the offer the Guild is to vote on alters the lifetime guarantee language; more will be revealed at tonight's union meeting. But Morton agreed that if the guarantees are removed, or fundamentally changed, it improves the paper's "saleability" to those out there - and there are some - interested in buying newspapers.

This spring, a Beverly Hills private equity firm, Platinum Equity, purchased The San Diego Union-Tribune, despite the paper's disastrously decreasing revenues, for an undisclosed sum. Mark Barnhill, principal at Platinum Equity, declined to comment yesterday on whether the company might also be interested in acquiring the Globe. The company, he said, does not comment on its acquisition plans. But even now, Barnhill said, with all the changes rocking the newspaper industry, Platinum Equity is looking to add more papers to its holdings.