A bad investment too?

McClatchy Co., the California-based owner of the Star Tribune, sold the Star Tribune today for less than half what McClatchy paid for it eight years ago. I have promoted the view that the Star Tribune is the worst newspaper in the country. Was it it a bad investment too? Star Tribune reporter John Reinan writes :

Avista Capital Partners, an investment group focused on media, health care and energy companies, will pay $530 million for the newspaper, which Sacramento, Calif.-based McClatchy bought from Cowles Media Co. in 1998 for $1.2 billion. Avista has offices in New York and Houston.

Considering the time value of $1.2 billion over eight years, it’s hard to believe that McClatchy didn’t take a bath on its investment in the Star Tribune. McClatchy suggests that the paper was profitable while it owned it, but I don’t think it publicly discloses the paper’s operating profit. The sale of the paper at this time was apparently driven by McClatchy’s desire to offset taxable gains incurred in connection with its sale of Knight-Ridder properties earlier this year against the loss it realizes in selling the paper. That, in any event, is how I translate this:

Immediately after announcing the $4.5 billion Knight Ridder buyout, McClatchy began selling a dozen of its newly acquired papers in what the company said were slow-growth markets or, in the case of the St. Paul Pioneer Press, raised anti-trust concerns.
In a statement Tuesday, McClatchy said that “a detailed analysis of the company’s portfolio identified a number of unique financial tax benefits associated with the sale of the Star Tribune that would serve the long-term interests of the company and its shareholders.”

I am not versed sufficiently in the tax laws or corporate mumbo jumbo to know if my construction makes sense, but I don’t know what else to make of McClatchy’s statement. The apparent fact that the sale of the Star Tribune will defray McClatchy’s taxes provides an ironic real-world counterpoint to the Star Tribune’s utterly relentless editorial promotion of taxes and tax increases.
We wish our several friends who work at the Star Tribune the best and hope that the paper’s new ownership improves the paper where improvement is needed. Hint: It’s not the sports section.
UPDATE: Captain Ed comments here. Reader Niel Morgan helps me out:

McClatchy paid $1.2 billion for the Star Tribune, eight years ago and sold it for $530 million? And you have to ask: Was it it a bad investment…? Uhh, yes it was. Very bad.
If the paper had made enough money from operations over the eight years to cover the cost of capital and recoup the difference between the original cost and the sales price, it would have sold for a lot more than $530 million. And deducting the loss from other taxable income does not make it a good deal (unless their tax rate is well over 100%).

Okay, okay, I was pretty sure that the Star Tribune turned out to be a bad invesment for McClatchy, but I appreciate the help. Reader Jon Miners, however, offers a qualified dissent on the inference to be drawn from the paper’s sale price:

The value of newspapers generally has declined in the last eight years, as investors anticipate increased competition. It is very possible that a business could be quite profitable over any given period of time yet still have lost market value, since market value depends on considerations of future prospects as opposed to past profitability. The basic problem of newspapers is that in this internet era, why are we still hauling all that paper around?


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