Looking at the financials of the WaPo deal – for the new owner, $250 million was a fair deal
Many pixels will be spilled over the WaPo sale yesterday, let me spill a few more.
The sales price of $250 million for The Washington Post is getting much attention, especially by the usual media observers who are called upon to provide a quote every time something happens in the newspaper industry. There may be fewer daily newspapers around today, but apparently there is only one or two newspaper consultants left – at least that is what the NYT reports seem to feel (or they simply are lazy).
The problem with evaluating any sale of a media property today is that the old rules of multiples no longer apply. In my own days in the M&A field one could easily decide on the proper sales price of any property based on its profits, or its revenue. A multiple of ten or more of profits was considered fair in the days when print media properties were bringing strong profits. For a weak or unprofitable title, one could always multiply the revenue by one, one and a half, or two, to calculate the proper sales price.
In 2012, The Washington Post Co. reported that its newspaper division saw its revenue decline 7 percent to $581.7 million, from $622.5 million in 2011. But Slate, which was not sold off in the sale to Jeff Bezos, was included in those numbers, though that property is not a major factor.
Net income was negative as the newspaper division lost $53.7 million in 2012, more than double the losses endured in 2011.
Through the first six months of 2013 revenues continue to fall, though at a slower pace. Revenue was down 2 percent through the first half of the year to $265.7 million, but net income shows that the newspaper division could lose up to $100 million in 2013.
So how to calculate a fair sales price? That’s where the magic of the black book comes in. No doubt Allen & Co. did an excellent job of presenting the Post in the best light possible, and with shifting properties in and out of the mix could make the P&L look a little more appealing.
But using any traditional measure of M&A the final sales price was not out of line. The reason for this is that no sale is only about the financials. Many media properties are sold solely based on the competitive landscape. A B2B magazine in the same field you are in is always more valuable than the P&L may show because the elimination of a competitor has many positives, for instance.
Today, when newspaper properties are sometimes sold for the political influence they can generate – see San Diego, for example – the price of the paper, or its continuing losses, can be of secondary importance.
In the case of Jeff Bezos, the sales price of $250 million, some have reminded readers, represents only 1 percent of his net worth. Just as importantly, a continuing loss of $100 million annually would only represent 4 percent of his net worth after a decade – assuming he never makes another penny from Amazon.com. In others words, even with today’s economics the paper is inconsequential to Bezos’s net worth.
Bezos owns 87 million shares of Amazon.com stock. Today’s opening price of $300.51 brought their value to just over $26 billion. When the stock hits its low today of 298.54 Bezos had lost $171 million. Its rebounding to 300.09 meant he made back over $137 million. Any day’s mild fluctuations of the stock market effect the net worth of Jeff Bezos more that the ups and mostly downs of the Post ever will. Is Bezos really going to be concerned about losing $100 million next year with the Post?
In the end, $250 million for the Post was a fair price from the perspective of the new owner. Had another newspaper company bid on the property, and no doubt one was considered, the net income expected from the Post would have been a consideration. It wasn’t for Bezos.