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Rocky parent plans spinoff; Post facing possible debt default

By David Milstead, Rocky Mountain News (Contact)

Published June 27, 2008 at 10:10 p.m.

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CORRECTION: This story should have made it clear that a plan by E.W. Scripps to spin off several fast-growing businesses into a new company will result in two stocks for current shareholders: a share in the new company worth about $39 and a share in E.W. Scripps, which will likely trade for about $3. The combined value of the two shares should be close to the value of the current share.

The continuing decline of the newspaper industry is putting pressure on the owners of Denver's two daily papers.

On Tuesday, E.W. Scripps, the owner of the Rocky Mountain News, will spin off its fastest-growing businesses - cable networks and Internet sites - into a new company called Scripps Networks Interactive. Shorn of those pieces, the stock of Cincinnati-based Scripps - now a local media company, with newspapers and broadcast stations - is poised to fall by 90 percent or more.

The final quarter of MediaNews Group, the owner of The Denver Post, ends Monday. Major rating agencies say the company is at risk of defaulting on its debt by the end of 2008. The results for the quarter ending Monday may violate the terms of MediaNews' loans, Standard & Poor's analyst Emile Courtney says.

While MediaNews executives say they expect to stay in their lenders' good graces, Courtney says the company's declining cash flow makes it "increasingly likely that MediaNews will pursue a restructuring of some kind."

Scripps and MediaNews are not alone in their struggles. During the past two weeks, newspaper companies from Palm Beach, Fla., to Hartford, Conn., and all across the Sacramento, Calif.-based McClatchy chain have announced hundreds of job cuts. Chicago-based Tribune Co. is selling off assets, from the Chicago Cubs to the buildings that house its papers, to stave off default.

The newspaper industry's problems are twofold. One is a massive shift in how readers consume news. Ever-growing use of the Internet is contributing to steep declines in paid circulation.

Now, as growth has slowed and a recession seems inevitable, major drivers of advertising - real estate, automobiles and help-wanted - are "in a tailspin," said newspaper analyst John Morton of Silver Spring, Md.-based Morton Research.

Privately held MediaNews has financed its growth through debt. Companies that borrow must keep in compliance with certain other requirements, called "covenants," such as having enough earnings to keep the lenders comfortable.

The company had to renegotiate with its lenders in 2007 because it was poised to violate the covenants. Analysts, like S&P's Courtney, believe that once MediaNews tallies its earnings for the quarter that ends Monday, it may violate covenants again.

"That is their opinion," MediaNews CEO Dean Singleton said. "We're in compliance with our covenants. We've always been in compliance with our covenants, and we'll always be in compliance. These are difficult times, and we know how to operate in difficult times."

During the past decade, Scripps transformed itself as a company. In 1997, roughly 95 percent of the company's $1.2 billion of revenue came from newspapers and broadcast TV. By 2007, its cable networks, which include HGTV and the Food Network, and its Web sites, which include Shopzilla, accounted for 57 percent of $2.5 billion of revenue.

"We think that as a result of this separation into two publicly traded companies, each will attract a distinct investor base," said Tim Stautberg, slated to become chief financial officer of E.W. Scripps next week when the spinoff concludes. "Scripps Networks Interactive will attract growth-at-a-reasonable- price investors, and the Scripps newspaper-and-television, the value and dividend-yield investor."

Scripps Networks Interactive and post-split Scripps shares already are trading on a "when-issued" basis, with traders essentially buying and selling the shares with a promise to deliver them when they're available.

Friday, Scripps' "when-issued" shares closed at $3.20. Scripps Networks Interactive when-issued shares closed at $38.74.

For an extended version of this article, see Finance Editor David Milstead's Material Disclosures blog. He can be reached at milstead@RockyMountainNews.com or 303-954-2648.

Comments

  • June 29, 2008

    10:58 a.m.

    Suggest removal

    conservative111 writes:

    I quit subscribing to the Rocky after the 2006 elections and when I got tired of Tina Griego, Mike Litwin and Bill Johnsons "opinions" being printed day after day, especially Griego's diatribes about illegal aliens. I pick up a copy or look at it online once in a while but now it seems it has become the Democrat National Convention News. Believe it or not Rocky, we republicans and conservatives would like to read your paper, but it needs to be a lot less slanted the liberal way.

  • June 29, 2008

    6:51 p.m.

    Suggest removal

    HolierThanThou writes:

    I started subscribing to the Rocky after the 2006 elections. I enjoy reading Tina Griego, Mike Littwin, and Bill Johnson's interesting views. They all show the human side of issues that most reporters miss as they're in a hurry to meet deadlines.

    Your editorial staff often panders to conservative crackpots and their agenda. That's when you are at your worst. It's as if you momentarily ignore the facts to molly coddle those who have made a habit out of ignorance.

    But I can forgive you these lapses of good judgment because I understand that your conservative corporate overlords put a lot of pressure on you guys to toe the line. Truth has a liberal bias. It must be difficult having to brush the facts aside to keep your jobs.

  • June 29, 2008

    8:29 p.m.

    Suggest removal

    Brix57 writes:

    Doom and gloom reporting has finally caught up with the newspapers. For years we asked for more local coverage done by local talent and for those years we were barraged by every story elsewhere that had any blood, misery, death, etc., that were written by others who had never set foot in Denver.

    Pick up any copy of the major dailies in Denver and even the local news is regulated to somewhere farther in. There is much to the Denver metro area that never even makes it in. How can the voter even know what local issues are being debated, who is running for a local position is if the local newspapers do not give their readers the information?

    If the major newspapers receive much of their revenue from advertisers, why then is the subscription price out of reach for many? Now that higher prices are being paid for many goods and services and that wages have not kept up with this, is it any wonder that that the local newspaper that prints news from anywhere other is fast losing their business?

  • June 29, 2008

    10:11 p.m.

    Suggest removal

    LooseCannon writes:

    Too bad. The Rocky used to be worth picking up in the driveway every morning. But, after it fell into line with the rest of the left-loving major dailies, it ceased to be worthwhile. The Post was never anything but the mouthpiece of the libs. Oh well, Murdoch is turning the WSJ into a paper worth purchasing.

  • June 29, 2008

    11:26 p.m.

    Suggest removal

    PleadTheFifth writes:

    I quit watching the evening news..too liberal, I quit reading the Denver Post...too liberal. Liberal college professors taught journalism students well, now the news media is reaping the benefits of pandering to the Left...enjoy.

  • June 30, 2008

    7:05 a.m.

    Suggest removal

    HolierThanThou writes:

    See? The strategy of pandering to conservatives doesn't work because they don't read.

  • June 30, 2008

    10:22 a.m.

    Suggest removal

    jacka writes:

    Time to breakout those really good stories on political scandals, do a point-counterpoint and limit the web publishing.

    Or link up with Google or MSoft and start taking part in the on-line ad revolution. Time to start questioning the establishment, create some buzz baby.

    Story ideas:

    1. Where did the Ritter campaign violations go?
    2. Why the rest of Colorado and many in Denver don't subscribe to the oft covered positions of Hickenlooper, Udall, Denver Chamber DPS, RTD, etc...
    3. Who is Randy Pye mayor of Centennial and where is he leading us/Centennial with his pro union positions, pro taxation policies, and pro bigger government policies?
    4. What 55,000 new members will mean to Colorado's largest unions?
    5. Why the high cost of doing business in Denver or Colorado drives businesses away to rural Colorado and other states.
    6. Just how high Xcel and pump prices are impacting the average Coloradan.
    7. Why RTD is in a hole.
    8. Political scandals.
    9. Why businesses leave or avoid Colorado.
    10. Why the eviros, unions and trial lawyers radical positions are wrong for Colorado.
    11. Why TX has high residential property taxes, yet attracts businesses, new citizen's and retirees.

  • June 30, 2008

    10:34 a.m.

    Suggest removal

    Quagmate writes:

    I can read the news on my phone, and even then I really don't care much for what I am reading. I was a Journalism major in College (had decent teachers too) and I can say that today’s journalism as driven by the "Editors" is a joke.

    All we are given is Who did What and When. Those are the easy questions. The How things happen is never fully developed and is more often salacious and misleading.

    The biggest missing piece in every single story is the Why? And this is where opinion comes along and trumps the whole story. Often the Why is written as fact when in truth it is an opinion based on feelings not facts. Readers like myself are hard pressed to get real factually based stories. I find myself more absorbed in reading scientific articles than immigration, because the former has actual facts.

    I read the sports page because it is filled with facts. I stopped reading the business section because again it is an opinion section now. I read the news, but again find myself wondering where all the facts are and why stereotypes are so often used.

    Ask yourself this question; can you or I actually tell what is going on in Iraq reading major news publications or even watching the news on television? I have talked to the returning servicemen and women and what they tell me are facts and very little of it is ever reported in the media.

    So take some heart in this; the people are getting smart enough to know they are getting crap for coverage. That in itself is encouraging.

  • June 30, 2008

    12:54 p.m.

    Suggest removal

    Logical writes:

    Dude - you are drinking coffee to get caffeine stimulation, but pop-ups are over-stimulating??? They should help your cause!(Couldn't resist)

    HTT - Your view is opposite of mine. When a conservative poster calls libs names, you get bent out of shape. Yet you call us "conservative crackpots", and anything you disagree with is "pandering" to us. While we disagree, I don't call you ignorant or misguided. Why sling names at us?

    As an example of the dishonest way Democrat politicians advance their agenda, and how the liberal papers let them get away with it: Sunday's Post (I receive it by default) had an article about a part of the recently-passed Farm Bill, and a portion of the bill that reinstated a response period for black farmers to claim damages from the government. The article said that the bill pegged the cost at approx. $100 million, but in reality the cost would be immensely greater (can't find the article in the online version today). The Democrat sponsor of the item responded by saying "If we put higher numbers in, it wouldn't have been included in the bill". How underhanded is that? Lowball a project just to get it passed, knowing full well that it would cost many-times over.

    That, HTT, is one example of why I don't trust Democrats. You may rant about Bush "lying" to get us into Iraq, but he was acting on intelligence gathered under Clinton's administration. Your Democrat politicians are less honest than the president you so revile. They have all the facts (not speculation based on intelligence), yet still lie.

    Look at the entire picture sometime, not just the feel-good spin, and you may begin to understand why Republicans have different views than libs. Reality does not always feel good, but that doesn't make it less real.

  • June 30, 2008

    1:52 p.m.

    Suggest removal

    jcn7vc writes:

    HolierThanThou said:
    "See? The strategy of pandering to conservatives doesn't work because they don't read."

    Yep, we're too busy working hard at our jobs to pick up the paper. If we didn't have to give so much of our wages to welfare, maybe we could spare an hour to read the crap you libs put in it.