Newspaper publisher Tronc Inc. (NASDAQ: TRNC) fired the editor in chief and publisher and several other senior editors at the Los Angeles Times on Monday. Media veteran Ross Levinsohn was named as the new publisher and CEO.

The decisions are critical to the future of Tronc, which has a market cap of $440 million. The L.A. Times is probably worth more than $400 million, based on the industry’s history of large daily newspaper acquisitions. Its performance is absolutely critical to Tronc’s stock value.

The easiest way to set a price on almost anything, and among the oldest, is based on what someone or some organization will pay. With that consideration, the L.A. Times was discussed as a buyout target recently. There were rumors in late 2015 that Los Angeles billionaire Eli Broad and a group of wealthy individuals tried to buy the paper and sister property San Diego Union-Tribune from Tribune Publishing, Tronc’s predecessor (Tribune was renamed Tronc in June 2016). Although Broad says he has lost interest, the news begged the question of the value of the paper, or papers if the San Diego Union-Tribune is included.

The best-known billionaire buyout of a major U.S. daily was when Jeff Bezos, founder of Amazon.com, purchased the Washington Post, one of the three or four trophy papers in the United States. This list would also include The New York Times, L.A. Times and The Wall Street Journal.

Bezos paid $250 million for the paper in 2013. The only other trophy paper with a price that is easy to peg is the New York Times. The market cap of its parent is $2.9 billion, though it would have to be adjusted for debt and pension obligations if it ever changed hands. Among the reasons the N.Y. Times has such a high value is its 2.33 million digital-only subscriptions, which produced $82 million in the second quarter of 2017, the envy of the industry. It is also considered the best newspaper in the United States, as well as the premium daily newspaper brand. Based on second-quarter revenue, the annual run rate for N.Y. Times revenue is $1.6 billion.

Among other papers bought by billionaires, Paul Huntsman took over the Salt Lake Tribune last year from huge chain Digital First Media. No price was given.

John Henry, who owns control of the Boston Red Sox, purchased the Boston Globe in 2013. He paid $70 million. The previous owner, the New York Times Company, paid $1.1 billion for the Globe in 1993.

Sheldon Adelson bought the Las Vegas Review-Journal for $140 million, an extraordinary price for a medium-sized paper. Adelson has been a fixture in the gambling industry, and in Las Vegas, for decades. He also has donated millions of dollars primarily to conservative politicians.

Glen Taylor, who owns a piece of the Minnesota Timberwolves professional basketball team, bought the Minneapolis Star Tribune in 2014 for $100 million. Once again, for a paper its size, the price was extraordinarily high, at least based on what papers generally are worth.

The seemingly high prices billionaires have paid for newspapers bring the issue around to the industry’s “normal math” for M&A. What these billionaires paid and what might be paid for The L.A. Times have little relationship to the public market value of most papers, or at least those that are part of public companies. Tronc has a market cap of $440 million. The figure was closer to $600 million when media company Gannett offered to buy Tronc, a bid Gannett dropped last November. Gannett’s effort is another indication of how low multiples are compared to revenue, even though Wall Street considered the Tronc bid very rich.

Tronc’s revenue in the second quarter was $370 million, down 8.6% from the same period in 2016. Net income for the entire company was $6.8 million, up from $4.1 million in the year-ago period. Digital revenue in the second quarter of 2017 was $58.2 million.

The same can be said about the value of Gannett Co. Inc. (NYSE: GCI), which has a market cap of $826 million against annual revenue run rate, based on second-quarter sales, of $3.1 billion. Across all its newspapers, which include USA Today, total digital paid subscriptions were 290,000 at the end of the second quarter.

On a smaller scale, A.H. Belo Corp. (NYSE: AHC), which owns the Dallas Morning News, has a market cap of $101 million, against an annual revenue run rate of just above $250 million. It does have a small marketing company that has large margins and probably lifts the enterprise value of the entire operation. Belo closed last quarter with 20,000 digital-only subscribers.

One other piece of information about newspaper prices is what Gannett paid for the Journal Media Group, which was publicly traded, in 2015. The price was about $280 million. Journal Register Media had revenue of $450 million the year before. Gannett said it would be able to cut about $35 million in expenses over a period of two to three years. Gannett was rumored to have paid $40 million for the North Jersey Media Group last year. The company owns The Record, one of New Jersey’s largest newspapers. Gannett did not disclose a price. Industry experts believe it was less than half of the group’s revenue of about $90 million. Gannett sharply cut expenses, which included a large staff reduction, shortly after the deal closed.

How important is the L.A. Times to the market valuation of Tronc? Ken Doctor recently reported at TheStreet.com that the paper’s digital audience and revenue were about half the parent’s total. That would place its annual revenue at $600 million. That seems reasonable. The comparable number for the N.Y. Times is $1.6 billion.

The L.A. Times margins are much smaller than those of the N.Y. Times, which affects that multiple math. The same can be said for the contrast in the size of their digital subscription bases.

At a third of revenue, a rational industry buyer might pay $200 million for the L.A. Times. Tronc has already taken out whatever savings a public newspaper company would logically take. A motivated private buyer would pay more, as has been the case several times in other cities in recent years.

The L.A. Times is one of the great media trophy properties in America. However, as part of a public company, it needs to prove that it can post rising revenue and improve the bottom line. So, a price of $400 million for the L.A. Times based on recent “billionaire” appetites for trophy newspapers? Yes. But Tronc won’t sell the L.A. Times, so Levinsohn has his work cut out for him.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.