New York Times

New York Times is in the process of seeking bids for the Boston Globe and other New England properties, Bloomberg reports. If a sale is concluded,  this would complete a multiyear process of spinning off all noncore assets other than the New York Times flagship and the International Herald Tribune, through which the company has generated approximately $1 billion over the past year.

In a statement issued today, Evercore Group says that it “is providing financial advisory services to The
New York Times in connection with a potential strategic transaction for the New England Media Group, including The Boston Globe and its related properties.”

The New York Times Company (NYSE:NYT) leads the industry in moving towards a subscription based model with circulation accounting for approximately 50% of total revenues and growing. The New York Times has among the highest digital subscriber base in the US in within 2 years of the launch of its pay wall, which provides an additional lever for the company to grow revenues. The company’s Sunday home delivery circulation has been growing over the last 4 quarters for the first time in many years. Given that the Sunday edition accounts for a large share of ad revenues, this is a significant trend.

In August 2012 analysts at Barclays predicted that the The New York Times Company (NYSE:NYT) might sell off the Boston Globe. They thought that discussion at the time about the The New York Times Company (NYSE:NYT) going private, was unlikely for the following reasons:

Economics: In order to understand the economics of a buyout, Barclays assumed the following assumptions:

$100m in minimum cash balance
Maximum leverage of 2x ( net debt/EBITDA)
Take out price of $12-$14 (premium of 28-49%). They note that this implies a 5.5x to 6.5x multiple on an EV/EBITDA basis
Total cash of $840 million assuming sale for $270 million happens in line with recent press reports. The New York Times sold in September 2012 for approximately $400 million.

Nonetheless, Based on that math, the company would today need an incremental $620 million to $880 million in the form of equity to take the company private.

Barclayst noted “while the company could raise part of this capital by selling other assets like the Boston Globe, we believe it is unlikely to be enough to generate adequate capital to fully fund the buyout internally. As we had highlighted earlier, the New England Media Group could generate $100 million- $200 million in a sale. Therefore, in order for the buyout to become possible, the company would need external equity investors. This, in our opinion, is a major hurdle as the external investors are unlikely to get any control of the company given the ownership structure, which we look at next.”

Barclaysts is out with a new report on the potential sale. They expect the New England Media Group to generate approximately $380 million in revenues in 2013. While the company does not disclose segment earnings for the New England Media Group, the company has said in the past that the New England Media Group has been breaking even on an operating profit basis. Therefore, from a valuation perspective, Barclays uses price to sales and believe that the sale of the New England Media Group could generate another $150-180 million. This is based on a price to sales of 0.4-0.5x, based on recent transactions in the newspaper space.

New England Media Group could generate ~$380MM in revenues in 2013

The analysts note that the New England Media group also has underfunded pensions which, based on past sales by New York Times, could continue to be on New York Times books. Overall therefore, the sale, if concluded in lines with their estimates, would add ~$0.60/share or ~7% to the equity value.

From a liquidity perspective, the company had approximately $900 million on a pro forma basis as of January (net of pension payments). A sale of New England Media Group could add an additional approximately $100 million on a post tax basis, without the company losing much in earnings, if the sale is concluded in line with the estimates. Therefore, overall, if concluded, it further enhances the potential for cash returns by the company.