Corporate Restructuring – Thomson to Sell Newspapers, Tie Growth to Online Information

Newspapers have been good to Thomson Corp., but the Toronto-based media giant figures it will do even better by pegging its future to serving up specialized and professional information online. In the largest newspaper sale ever in North America, Thomson is bidding adios to its far-flung stable of print properties – with the notable exception of the prestigious flagship paper, the Toronto Globe & Mail. Proceeds have been projected at about $1 billion, perhaps north of that, and will be used to fund acquisitions and internal development in the company’s electronic operations. Goldman, Sachs was handed the sale assignment and has brought in Dirks, Van Essen & Murray, a specialist in sales of small newspapers, to help. Thomson’s print holdings include 55 daily newspapers (including the Toronto Globe & Mail) and 75 non-daily papers in the U.S. and Canada. Most of the dailies for sale are small-town papers, but the mix is spiced by such larger properties as the 150,000-circulation Winnipeg Free Press; the Tribune in Mesa, Ariz., with a circulation of 93,000; and the Connecticut Post, Bridgeport, with 80,000 in circulation. Robert Daleo, Thomson CFO and former COO of the newspaper group, said that the papers are “well-run businesses, high-quality, and leaders in the field, but they no longer fit strategically.” “We looked at the strategy of where we wanted to take the company and where we should be focused,” he said. “The information business fits with our plans of having businesses with strong positions and good growth, global in nature, business-to-business services, and primarily in the electronic medium. When you hold them up to the strategic filter, the newspapers are local, they are primarily business-to-consumer, and the longer-term prognosis is that they are primarily print media and will remain primarily print.” Formerly one of Thomson’s bedrock businesses, newspapers have been eclipsed by the expansion of online information, contributing only $810 million out of more than $6 billion in revenues in 1999. Thomson estimated that the papers generated $220 million in EBIT-DA (earnings before interest, taxes, depreciation, and amortization). Despite those seemingly impressive results, John Morton, a well-known newspaper stock analyst and head of Morton Research Inc. in Spencerville, Md., said that Thomson has the “lowest operating margins of any newspaper company.” But he said the properties are attractive and, especially where they have been assembled in “geographic clusters,” could “fetch very high prices,” aggregating $1 billion or more. Examples of clusters include 11 papers in Ohio, eight each in Indiana and Wisconsin, and six in Georgia. Some analysts also said that Thomson had wearied of seeing its stock, traded on the Toronto Stock Exchange, valued as a newspaper company and hoped for a higher multiple with the dominance of online information in future results. Thomson’s online offerings include legal, professional, financial, health care, and other types of information. Daleo said that an exact format for the auction was being worked out by the bankers but that he expected it to unfold in a “two-tier approach” involving those firms that “can do a single transaction” and playing off “the strong regional attraction for a different type of buyer.” “But we won’t break up the strategic marketing groups,” such as Morton’s clusters, Daleo said. “In Ohio, for example, we have several units operating as a business group,” he added. “We have leveraged the marketing programs and the back offices and we utilize cross-selling and cross-marketing.” Keeping the Toronto Globe & Mail is appealing because of the paper’s eminence and, according to Richard J. Harrington, president and CEO, it is “a strong fit with our financial information group.” Harrington cited its connections to Internet sites, broadcast assets, multimedia capabilities, and, with strong financial news coverage, “renowned business-to-business content.” Thomson stock closed February 29 on the Toronto Stock Exchange at 52. (Note: Mergers & Acquisitions magazine is part of Thomson Financial Securities Data Co., a unit of Thomson Corp.)