JimmyCsays: At the juncture of journalism and daily life in KC

(Note: This column was posted a couple of hours before news stories began to break saying The Star’s owner, the McClatchy Co., had filed for Chapter 11 bankruptcy protection early this morning.)

For about the past 15 years, I’ve tracked the somewhat parallel paths of The Star and the St. Louis Post-Dispatch.

Both have been on sharply downward slopes, journalistically and financially, since being purchased by their current owners.

Mainly because of developments the last two years, however, the Post-Dispatch is now on much steadier ground than The Star.

Let me show you…

Before it was purchased by Lee Enterprises of Davenport, IA, in 2005, the Post-Dispatch was owned by Pulitzer Inc., a revered St. Louis company that also owned the Arizona Daily Star in Tucson and 12 other papers.

Lee, which owned 44 relatively small papers, bought the Pulitzer group for $1.5 billion and took on $1 billion or more in debt.

Tony Ridder

A year later, Tony Ridder, C.E.O. of the Knight Ridder chain, was pushed into selling by a disgruntled, major stockholder. It turned out to be the best move Ridder ever made because he found a willing buyer with eyes much bigger than its stomach.

The McClatchy Co., based in Sacramento, paid $4.5 billion for The Star and about 30 other Knight Ridder papers, several of which were major metropolitan papers.

McClatchy also took on more than $1 billion in debt.

Both Lee and McClatchy soon realized they had bitten off more than they could chew as newspaper industry fortunes plunged in the face of the internet explosion, with its proliferation of free news and information sites.

From that new, unhappy starting point in their respective rich histories, both The Star and the Post-Dispatch began losing subscribers and advertisers at jaw-dropping rates.

The Star, as I reported last week, has lost 50 percent of its Sunday print circulation since 2016, going from about 158,000 in December 2016 to about 79,000 in December 2019.

The Post-Dispatch is doing slightly better, having suffered a 40 percent loss, going from a Sunday print circulation of about 151,000 in December 2016 to about 91,000 in December 2019.

Here’s the difference, though: McClatchy has not been able to deal with its debt as well as Lee Enterprises.

McClatchy’s debt stands at about $700 million. Unable to adequately lower its debt, the company now is in the position of not being able to make a required pension-plan payment of $120 million this year.

As a result, McClatchy is in imminent danger of being sold, going into bankruptcy or being taken over by its largest shareholder and creditor, a hedge fund. (As I noted at the outset, McClatchy filed for bankruptcy early this morning.)

Lee Enterprises, on the other hand, seems to have been smarter.

It definitely has been luckier, the biggest stroke of luck being the arrival of Warren Buffett on the scene eight years ago.

Here’s a timeline that shows how Lee got to safer financial footing, mostly with Buffett’s help.

:: In December 2011, Lee filed for Chapter 11 bankruptcy protection to refinance nearly $1 billion in debt. Before the filing, Lee had secured agreements with 97 percent of its creditors to refinance what it owed them, and it came out of bankruptcy less than two months later with a deal with all its creditors. “This…provides Lee with a nearly four-year runway to continue improving our balance sheet,” Lee chairman and chief executive Mary Junck said.

:: In April 2012, less than three months after Lee emerged from bankruptcy, Buffett’s Berkshire Hathaway company took a stake in Lee, buying $85 million of the company’s debt from Goldman Sachs. About the same time, Berkshire Hathaway bought $2.1 million worth of Lee stock, representing a 3.2 percent of outstanding shares.

:: In 2013 and 2014, there was more debt refinancing.

:: On June 27, 2018, Lee Enterprises and Berkshire Hathaway reached a five-year agreement to allow Lee to manage Berkshire Hathaway’s newspaper and digital operations. BH Media Group has 30 daily newspapers in 10 states, including The Buffalo News, the Omaha World-Herald, the Tulsa World and the Winston-Salem Journal.

:: Capping the Lee/BH relationship, Lee announced an agreement two weeks ago to buy the BH Media Group for $140 million. As a sort of goodwill farewell to his decades of newspaper ownership, Buffett provided Lee with $576 million in long-term financing, some of which Lee will use to refinance its roughly $400 million in remaining debt. After the deal closes — expected in mid-March — Berkshire will be Lee’s sole lender.

Warren Buffett tried his hand at newspapers for many years but is getting out

Sounding a strong note of confidence in Lee, Buffett said in announcing the sale:

“We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges. No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee.”

Many present and former journalists are sorry to see Buffett getting out of the newspaper business. The big beneficiary, however, is Lee Enterprises and its current largest paper, the St. Louis Post-Dispatch, whose future now looks pretty darn good.

And The Star? It remains squeezed in McClatchy’s suffocating tentacles, its future completely up in the air.