Monday morning Journal Communications Inc. announced
that it has bought
back shares from the Grant family – the last vestige of the company’s ties
to the private owners who managed to keep the once-flagship Milwaukee Journal independent at a time
when chains were gobbling up American newspapers like the newsroom pizza on
election night.
“This is a big deal,”
a local investment manager tells me privately. This week’s buyback, costing the
company $31.8 million in cash and debt, gives it a degree of flexibility for
any number of moves – including the sale of all or part of the business.
Harry Grant didn’t
found the Journal, but he was the
architect of the newspaper’s employee ownership plan, the key to that
aforementioned independence. The plan was created in 1937 – dispersing
ownership (although not real control) broadly among the newspaper’s employees,
and later extended to the broadcast operations of what in those days was called
The Journal Company, as well as the Milwaukee
Sentinel, which the company bought from Hearst in the early 1960s.
In creating the plan, Grant engineered it so that a minority
percentage of the company – but the lion’s share of actual control – remained
closely held in the hands of his descendants.
The arrangement made it far more difficult for outside
buyers to sweep in and woo a majority of shareholders to sell out. So it was
that even as newspapers in comparably sized or larger cities became part of
chains, the Journal Company and later Journal Communications followed its own
path.
JCI’s conversion from an employee-owned to a publicly traded
company in 2003 maintained that arrangement, turning the heirs’ stock to
specially privileged Class C shares. The Class C shareholders were guaranteed a
minimum dividend, the right to approve strategic transactions, two votes per
share, and the right to name a nominee to the board of directors. In other
words, even after it was a public company, they had veto power over any attempt
to buy Journal Communications out.
Additionally, as an investing source points out, many
potential acquirers aren’t interested in a company with multiple tiers of
stock. And there’s a segment of the investing world that views diversified
companies as worth less than their constituent parts – which could offer
further incentive for a breakup. Inside the JS
newsroom, Pressroom Buzz has learned, speculation has been mounting that
the company would now try to sell off just the publishing arm.
JCI management has
not responded to a request for comment. In its press release announcing the
deal, JCI chairman and CEO Steven Smith said that it “simplifies
our capital structure and allows us to remove a class of stock that had
enhanced voting and other rights.”
As I pointed out in March, Journal Communications has
continued to evolve toward being a broadcast
company that owns some print media, rather than a publishing company that
owns some broadcast outlets. CEO Smith came out of the broadcast end, and Andre Fernandez, chief financial officer and recently named president of the
company, came to JCI from General Electric, where he was a senior executive at
the GE/NBC Telemundo Communications Group unit, parent of the Spanish-language
cable TV operation.
Another possibility might be splitting the company into two
units, print and broadcast, both publicly traded. That is what the owner of the
Dallas Morning News, Belo Corp., did in 2008
and what Rupert Murdoch’s News Corp.
is
in the process of doing as well.
In the case of Journal Communications, however, investors
have been slow to
embrace the new development. The company’s stock (which trades on the New
York exchange under the symbol JRN), is up about $1.50 a share since May, but
so far hasn’t moved much since Monday’s announcement.
Tom Silverstein,
president of Newspaper Guild Local 51 representing JS newsroom employees, says the union is “monitoring the
situation,” but has learned nothing more than what was the corporate press release.
“I’m
surprised the market doesn’t like it more, at least immediately,” says Doug Armstrong. He’s a former Journal film critic, later JS banking reporter, and after his
retirement, among a cadre who had sought to rally shareholders in a challenge to
the company’s current management direction.
Corresponding
via email, Armstrong observes that the deal frees up cash flow, eliminating the
dividends that Class C heirs were paid. He notes that by taking some 3.26
million shares out of circulation, it boosts the value the remaining shares.
“In
addition, for public Journal investors, it places a private market price on the
company that says the market is currently undervaluing it,” Armstrong says. The
purchase also “removes a major obstacle to a potential acquirer… It’s like a
neon sign to other media conglomerates that Journal management is now open to
an outside offer when they have not been in the past.”
Admittedly, though, that’s
not the only way
to view the deal. It may simply be an effort to clean up the ownership
distribution, eliminating an odd block of stock and boosting the
price-to-earnings ratio by reducing the number of shares.
But
if the company, or at least its publishing arm, is sold, who might buy it?
The
big chains are mostly avoiding acquisitions, having suffered from the same
forces that have eviscerated profits at the Journal
Sentinel. And Urban Milwaukee
Editor Bruce Murphy is probably right that chain ownership would
be disastrous for Milwaukee.
The
most intriguing possible buyer, as Murphy also notes, might be billionaire Warren Buffett, who has been making
strategic investments in the newspaper business – but mostly in smaller operations.
So
will the Sage of Omaha becomes the Savior of Milwaukee newspapering? Perhaps.
But that might be a little too much wishful thinking.
A footnote: I found myself wondering if the hope of making the
paper more attractive to a buyer might have partially explained the particularly
hard-nosed bargaining that JS management took in recently completed
negotiations with the Guild. Maybe, maybe not. There are ways to structure a
sale so that the union contract itself can be scrapped entirely, although the
details are intricate.
*
Comment
below, or write Pressroom at pressroom@milwaukeemagazine.com.
Follow Pressroom on Facebook or on Twitter.
