The latest edition of Morningstar StockInvestor, a monthly publication of the renowned independent investment and research firm, contains a very grim forecast for the McClatchy Co., owner of The Star and several other newspapers.
McClatchy stock , which traded at about $50 a share when the company bought out Knight Ridder in 2006, closed Friday at $4.28 a share.
Morningstar StockInvestor, which is available by subscription only, opened its review of McClatchy this way:
“Since its poorly timed acquisition of Knight Ridder in 2006, McClatchy has struggled under the multiple weights of declining revenues, high debt, large exposure to troubled housing markets, and the continuing shift of readers and advertisers from print to online. Given the persistence and severity of these conditions, we think equity shareholders are at risk of losing the entire value of their investment.”
Gulp. Those two sentences should make everyone working at The Star and other McClatchy papers, like the Sacramento Bee and the Miami Herald, not only cringe but start looking for new jobs.
While McClatchy and other newspaper chains have tried to paint a rosier-than-real picture of the industry by saying, essentially, “the losses are lessening,” Morningstar throws the tinted glasses aside.
“Our fair value estimate on McClatchy’s shares is $0.”
That’s right, Morningstar analyst John Ayling, who wrote the piece, thinks that the balance eventually will tip from stockholders’ interests to creditors’ interests and that stockholders will be left empty handed.
“McClatchy’s $4.6 billion purchase of Knight Ridder was a bold bet on the future of print journalism,” Ayling wrote. “The acquisition added more than $2.5 billion in debt to McClatchy’s balance sheet. It more than doubled both the company’s portfolio of daily mastheads and its annual revenues. However, in 2007, it took a noncash impairment charge of $3 billion — evidence that McClatchy overpaid for the Knight Ridder acquisition.”
Ayling sees newspaper industry weakness continuing. “During the next five years, we think that advertisers and readers will continue to gravitate away from newspapers and toward the ease and flexibility of the Internet. Internet-based classified ad sites allow advertisers to target readers with specific interests at lower cost than print classifieds.”
I want you to know that as I sit here and write this, I don’t feel good about it at all. One reason is that I bought a significant chunk of McClatchy stock (at about $50 a share) just before I retired in June 2006. Like McClatchy, I wanted to make my own bet on the future of print journalism. I also wanted to demonstrate my confidence in the new owners of The Star.
I remember clearly when McClatchy CEO Gary Pruitt came into the newsroom shortly before the deal closed and talked about how he believed things would go well for McClatchy and us, the employees. When I asked him, in front of the newsroom audience, if he was planning any employee buyouts, he said, no, that McClatchy believed in adding people, not subtracting.
At that point, having been thinking about retiring after nearly 37 years with the paper, I knew that I had to make my own arrangements; there wasn’t going to be any golden parachute. A couple of months later, I retired, and the paper paid for a send-off pizza party in the Independence bureau, where I was an assistant metro editor.
I might have been the last person to get a company-paid going-away party.
The memories of that party, which marked a happy culmination of my career, help ease the pain of the subsequent stock-market loss I endured. For McClatchy stock, along with that of other newspaper companies, soon began a steep, steady decline.
In 2008, I sold out at $8 a share.