Bacon's Rebellion

Democracy Thrives in Sunlight

Lee Enterprises and the Newspaper Business in Virginia

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sherlockj
in

by James C. Sherlock

Lee Enterprises, about whose frantic search for cash I wrote yesterday, owns a dozen newspapers in Virginia.

For now.

  1. The Daily Progress – Charlottesville
  2. The Free Lance-Star – Fredericksburg
  3. Register & Bee/Go Dan River – Danville
  4. Bristol Herald Courier – Tricities – Bristol
  5. Martinsville Bulletin – Martinsville
  6. The News & Advance – Lynchburg
  7. The News Virginian – Waynesboro
  8. Richmond Times-Dispatch – Richmond
  9. The Roanoke Times – Roanoke
  10. Culpeper Star-Exponent – Culpeper
  11. SWVA Today – Wytheville
  12. The Franklin News-Post – Rocky Mount

Lee’s current nationwide total of what it calls news “brands” is 85. It is a small and highly leveraged business.

This morning its stock (LEE:NASDAQ) market cap is about $81M at $13.37 per share at yesterday’s close. With $433M in debt, the enterprise value is $524M (Schwab).

Lee is teetering financially, and has been since it successfully but expensively fought off a late 2021 hostile takeover bid from Alden Global Capital, a hedge fund.

Alden owns The Virginian-Pilot, the Commonwealth’s largest daily, and the Daily Press on the Peninsula. It has been written that Alden’s business model is simple:

gut the staff, sell the real estate, jack up subscription prices, and wring out as much cash as possible.

We have already seen Lee Enterprises gut the staffs of its Virginia papers.

I haven’t tracked the real estate transactions, but now it is jacking up subscription prices to avoid selling its inventory or trying to obtain additional financing.

We’ve seen this play before.

The quick ratio describes a company’s short-term liquidity position — the ability to meet its short-term obligations with its most liquid assets. If the quick ratio is less than one, it will have to raise cash or sell assets to meet those obligations if called.

Lee’s three-year average quick ratio has been 0.63 (Reuters).

The current ratio compares all of a firm’s current assets to its current liabilities. Lee’s current ratio is 0.83 (Reuters). That means it may have problems meeting its current obligations.

With a debt-to-equity ratio of 44.9 (Reuters) — the ideal ratio is considered less than 1 — borrowing more money at affordable rates doesn’t seem an option.

The picture has been worsening (Reuters):

For the 26 weeks ended 26 March 2023, Lee Enterprises Inc revenues decreased 9% to $355.8M. Net loss totaled $4.8M vs. income of $5.4M. Revenues reflect Page Views (User Traffic) – Number – Tot decrease of 7% to 699M, Advertising and marketing services decrease of 10% to $167.3M, Subscription decrease of 9% to $158.3M. Net loss reflects Assets loss (gain) on sales, impairments decrease of 73% to $3.4M (income), Other.

Lee’s stock lost half its value between February 1 and May 5 of this year.

That is the background for its current attempt at massive subscription price raises.

Not even Alden, which offered $24 a share in cash in the takeover attempt in late 2021, may want Lee’s newspapers if it sells off what is left of the real estate assets.

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15 responses to “Lee Enterprises and the Newspaper Business in Virginia”

  1. DJRippert Avatar
    DJRippert

    In November 2021, Alden made an offer to Lee to purchase the company in its entirety for roughly $141 million.

    At the close yesterday, Lee’s market cap was $80.1M.

    It seems that Lee’s management and board not only have little regard for its customers but little regard for Lee’s shareholders as well.

    1. James C. Sherlock Avatar
      James C. Sherlock

      It seems from the numbers that all of the plates that Lee has spinning on sticks are about to come crashing down.

  2. Turbocohen Avatar
    Turbocohen

    Since buggies have been replaced by cars, the buggy whip has become a symbol for anything that is hopelessly outmoded. Same goes for newspapers. You know, at one time, there must have been thousands of companies making newspapers. And I’ll bet the last company around will be the one who makes the best damn newspaper you have ever seen. How would you like to be a stockholder in that company?

    1. James C. Sherlock Avatar
      James C. Sherlock

      These acquisitions by Lee and by Alden were basically real estate valuation plays. Alden may be better at the game.

  3. DJRippert Avatar
    DJRippert

    This was confusing ….

    “For the 26 weeks ended 26 March 2023, Lee Enterprises Inc revenues decreased 9% to $355.8M. Net loss totaled $4.8M vs. income of $5.4M….”

    It seems that Lee Enterprises has a fiscal year that ends on Sept 25. Therefore, the 26 weeks ending on 26 March 2023 represents the first half (plus a day for some reason) of Lee’s 2023 fiscal year. Presumably the comparative of -9% in revenue and net loss of $4.8m vs profit of $5.4m is against the first half of Lee’s 2022 FY. However, it could also be in comparison to the prior half (2H 2022).

    Either way, not good news.

    Interestingly, Berkshire Hathaway’s pig-like snouts are in the trough here too. Through a series of transactions, BH assumed all of Lee’s debt, lending to Lee at a fixed price of 9%. Given the deterioration in Lee’s business and the increases in interest rates lately, one wonder whaat Mr. Buffet thinks of this part of BH’s portfolio.

    When will Lee re-file Chapter 11 (it filed once in 2011 and emerged 2 moths after filing)?

    1. James C. Sherlock Avatar
      James C. Sherlock

      Berkshire Hathaway owned a large group of newspapers and lent Lee the money to buy them. So I’m not sure that net BH won’t have made money even in the case of default.

  4. Rafaelo Avatar
    Rafaelo

    Charlottesville’s Daily Progress content markedly improved suddenly, in the last few months. Sparkling prose (Hawes Spencer’s in particular); focus on local news; incisive questions like the recent interview of candidate Bellamy Brown.

    Even while the Daily Progress just cut its print edition down to three a week. They are relying on digital subscriptions. But using the Tor browser which hides your ISP address, you can see all the articles you want for free. “Free” is not a profitable business model.

    So perhaps the flashier content is like the sudden expansion of a red giant star running out of fuel. Before its end.

    1. DJRippert Avatar
      DJRippert

      So, because the Tor browser is anonymous and runs across a free overlay network that sends messages from lots of different places …. The Daily Progress thinks you are always a new user and keeps offering you “3 free articles” as a trial?

      If so, that pretty ingenious.

      1. Rafaelo Avatar
        Rafaelo

        Mixed feelings about Tor. The idea is dissidents under repressive governments need a cloak of invisibility. Good for them. But we news junkie freeloaders use it to louse up the ‘digital subscription model.’ Not to mention porn addicts, defamers, and those whose hobby is bomb threats. I suspect a system originally invented by the US government has some folks listening in. But then again I am a TOR user and thus presumed paranoid:

        “The original software, The Onion Router (TOR), was developed by US Naval Research Laboratory employees Paul Syverson, Michael Reed and David Goldschlag in the mid 1990s to protect the identity of US Navy intelligence agents.”

      2. Rafaelo Avatar
        Rafaelo

        Mixed feelings about Tor. The idea is dissidents under repressive governments need a cloak of invisibility. Good for them. But we news junkie freeloaders use it to louse up the ‘digital subscription model.’ Not to mention porn addicts, defamers, and those whose hobby is bomb threats. I suspect a system originally invented by the US government has some folks listening in. But then again I am a TOR user and thus presumed paranoid:

        “The original software, The Onion Router (TOR), was developed by US Naval Research Laboratory employees Paul Syverson, Michael Reed and David Goldschlag in the mid 1990s to protect the identity of US Navy intelligence agents.”

      3. how_it_works Avatar
        how_it_works

        I’m able to open as many news articles on the Daily Progress website as I want by opening them in an “icognito” window in Firefox.

        I did have to change some setting, which I don’t recall (I changed it over a year ago), to make that work for the Washington Post, because without that setting, their website is able to detect that you’re in “incognito” mode.

        Going by IP address wouldn’t work, there are far too many devices behind single IPs (ie, carrier-grade NAT)

  5. Super Brain Avatar
    Super Brain

    The Danville and Martinsville papers have pretty much the same staff. Both are basically the RTD with a local section.

  6. walter smith Avatar
    walter smith

    Learn to code, amirite?

  7. WayneS Avatar
    WayneS

    $24 a share might be looking pretty good to them about now.

  8. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    I just got my notice from the RTD of its rate increase–40 percent.

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