How much are top newspapers worth?

By Thomas Lifson

The website BizzyBlog does a rough calculation of the actual price being paid for the newspapers owned by the Tribune Company, if real estate billionaire Sam Zell's complex offer to buy the company in partnership with an employee ESOP goes through. The Tribune Company owns a lot of broadcast properties and other non-newspaper assets, most of which are extremely valuable.

The calculations are admittedly rough, and I am not certain that all the details have been properly included. Nevertheless, the conclusions are not likely to be significantly different than the analyst's. After deducting the rough market value of all the non-newspaper assets from the reported purchase price:

This leaves a relatively paltry $2.4 billion to spread around to the newspapers, which include:
- The Chicago Tribune
- The four former Times Mirror properties noted above
- The Orlando Sentinel
- Nine other smaller papers.

How paltry is that $2.4 billion?

The Tribune company paid $8 billion for Times Mirror in 2000. This included "extensive magazine holdings" worth at most $1 billion, leaving $7 billion in value assigned to the then roughly 1.85 million reader circulation of the four Times Mirror newspapers. That's a price per reader, if you will, of about $3,800.
Even if you assign no value to the company's smaller newspapers, it appears that Sam Zell was just able to pay $2.4 billion to "buy" about 2.3 million readers at the company's six major newspapers. That's a price per reader of about $1,040 - a decline of over 70% in just seven years.

Obviously, the board of directors of the Tribune Company squandered shareholders' money when they purchased Times-Mirror. And the newspaper business is not worth a lot these days. But according to what I have read about the deal, Zell's downside risk is very small because the employees' money via an ESOP plan will finance most of the deal, with Zell receiving options with much upside and a stock price lower than the employees get.

There's a reason this guy is worth so much money.