Numbers Behind the Deal
Pennsylvania newspaper publisher Richard Connor may have balked at giving the state retirement system board all the financial details about his plan to buy the Blethen Maine Newspapers, but the documents he did turn over to that public body provide some insight into how the sale might work and how much it might cost.
According to the material Connor and HM Capital Partners of Dallas used in their presentation to the board last week, the value of Blethen’s real estate in Portland, South Portland, Augusta, Waterville and Skowhegan equals at least 66 percent and possibly more than 100 percent of the still-undisclosed purchase price. Estimates of the properties’ values have ranged from a little more than $20 million to as much as $30 million, so the sale price is probably in that range, about 10 percent of the $230 million Blethen paid for the Portland Press Herald, Maine Sunday Telegram, Kennebec Journal and Morning Sentinel in 1998.
The document says the real estate, “Provides downside protection and deleveraging opportunity through non-core sales,” which seems to mean some or all the land and buildings could be sold off to cover losses or retire debt.
Connor’s financial plan calls for unloading $10 million of the real estate quickly, probably the Press Herald’s office and a vacant building and parking lot across the street in downtown Portland. He then appears to be planning to lease some of that space back.
Connor told the board he was anticipating continued declines in revenues in his first year of owning the papers. He predicted advertising revenue would be off 24 percent compared to 2008, and circulation would drop another 2 percent, resulting in a total decline in revenue of 19 percent. To ease the sting, he plans significant cuts, starting with pay and benefit reductions he’s negotiating with the company’s unions. In addition, he’d:
“Reduce senior management which is top heavy with too much overlap,” and “Consolidate production facilities, classified and retail sales, financial/admin/HR, customer service, information technology & on line infrastructure.”
Whatever that means.
As for money, Connor himself will invest $250,000, and HM Capital will put up $1.1 million, giving these two general partners a combined 10 percent ownership stake in the new company. In return for the contract concessions, the unions would own 15 percent. The remaining 75 percent would go to anybody who wants to buy a limited partnership (translation: if this deal goes belly-up, a limited partner would be no better than third in line to get paid back) for about $10 million.
That comes to $11.35 million. The potential new owners would also be assuming some debt, which — based on the real estate estimates — might be less than $10 million, but is more likely in the $15-million to $20-million range.
Connor’s current agreement to buy the Maine company expires next week, but sources say there’s almost no chance the sale will close that quickly, if at all. There are also credible rumors that another round of layoffs will hit the newspapers on or around April 1, regardless of whether Blethen extends the deal to give Connor more time to find an investor with deep pockets and an even deeper optimistic streak.