Bezos 'Post' Price Suggests Dream-Like NYT Value

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Edmund Lee, Brooke Sutherland and Tara Lachapelle for Bloomberg 2013-08-08 00:33:05 UTC

Jeff Bezos's purchase of The Washington Post may look like a steal, yet it came at a rich valuation that newspapers such as The New York Times (NYT) may only dream of obtaining.

The founder of Amazon.com Inc. (AMZN) plunked down $250 million for the Post newspaper division, about 17 times adjusted profit, according to data compiled by Bloomberg. That multiple implies a valuation for the New York Times of about $4 billion — more than double its current market value. Major metropolitan newspapers should fetch three or four times profit, said research firm Outsell Inc.

"Bezos paid a friendship premium of $200 million here," Ken Doctor, a media analyst at Burlingame, California-based Outsell, said in a phone interview. "There are a handful of news brands in the world that will merit some kind of premium over the usual multiple, but the multiple over the multiple here seems really high."

The value of newspapers has been cratering since Rupert Murdoch paid $5.2 billion for Wall Street Journal parent Dow Jones & Co. six years ago. The New York Times, the last major U.S. family-owned newspaper, has seen its market value fall 50% to $1.8 billion since the Dow Jones deal was announced as print advertising dropped and readers migrated to the Internet for news.

Ebitda Multiple

The Washington Post Co.'s newspaper-publishing division had around $14.5 million in 2012 earnings before interest, taxes, depreciation and amortization and including pension credits, based on figures provided by a person with direct knowledge of the matter who asked not to be named because it was confidential. That indicates Bezos paid about 17 times Ebitda.

Drew Herdener, a spokesman for Amazon and Bezos, didn't immediately respond to a call or email requesting comment.

Times Co., which is controlled by the Ochs-Sulzberger family, has an enterprise value of about $1.6 billion, or about 7.3 times Ebitda, data compiled by Bloomberg show. The company agreed to sell the Boston Globe to Red Sox owner John Henry last week for $70 million, a fraction of the $1.1 billion paid for the newspaper in 1993. Times Co. has previously said it's not for sale.

The New York Times "will be secure from any predatory intent up until the day the family decides they've done their best and, like The Post, consider that it may find a more suitable home in a private set of hands," said Tom Russo, a partner at Gardner Russo & Gardner who oversees more than $5 billion. The Lancaster, Pennsylvania-based firm has been a Washington Post investor since the late-1980s.

Financial Times

The Graham family’s decision to sell the Washington Post could spur Pearson Plc (PSON) to unload the Financial Times, according to Sachin Shah, a special situations and merger arbitrage strategist at New York-based Albert Fried & Co.

"The Financial Times is next," Shah said in a phone interview. "You want to strike when the iron is hot."

The Ebitda multiple being paid for Washington Post implies a valuation of close to $1.8 billion for the FT Group, which includes the Financial Times newspaper as well as a stake in the Economist magazine.

Tom Glover, a spokesman for Pearson, declined to comment on the valuations, as did Eileen Murphy, a spokeswoman for Times Co.

Selling FT

Last year, Pearson was planning to explore a sale of the Financial Times newspaper and may seek as much as 1 billion pounds ($1.6 billion) for it, a person familiar with the matter said in November. The paper is worth at least $1 billion, two other people said. At the time, Pearson said the Bloomberg report was wrong.

Bezos, independent of Amazon, is buying The Washington Post as well as other papers from the parent company, including the Express, the Gazette Newspapers and Southern Maryland Newspapers. The Washington Post Co. is keeping Slate magazine, TheRoot.com, Foreign Policy and other non-newspaper assets, including the Kaplan education division.

Washington Post Co.'s newspaper division reported a $53.7 million operating loss last year, wider than the year before. The division's sales declined about 7% to $581.7 million, with print advertising, once the lifeblood of the paper, falling 14% to $228.2 million.

"Tough Businesses"

"I can't imagine that he didn't have better opportunities to deploy $250 million if he was thinking purely in financial terms," Mark Hughes, an Ashton, Maryland-based analyst at Lafayette Investments, which owns Washington Post Co. shares, said in a phone interview. "As important as the Post and The New York Times are, as economic businesses, they're very tough businesses to be in today."

Bezos can manage the newspaper's losses going forward by utilizing its expertise in politics beyond major election years, according to Allen Weiner, an analyst with research firm Gartner Inc. Emerging media players such as Politico have capitalized on higher-priced subscription services targeting Beltway insiders, he said.

"That's a hot area they could take advantage of with their brand name," he said.

The Washington Post's status as a marquee newspaper may help justify the price, Shah said.

"How many Washington Posts, New York Times are there?" he said.

Image: Flickr, jeronzinho