Local Projo bid falls short

PAGE TURNER: Gatehouse’s winning bid for The Providence Journal does not include its Fountain Street headquarters, which A.H. Belo will retain and lease to the new owner. / PBN FILE PHOTO/BRIAN MCONALD
PAGE TURNER: Gatehouse’s winning bid for The Providence Journal does not include its Fountain Street headquarters, which A.H. Belo will retain and lease to the new owner. / PBN FILE PHOTO/BRIAN MCONALD

(Corrected, Aug. 5, 2:43 p.m.)

Ultimately, the numbers didn’t add up to local ownership of Rhode Island’s most prominent newspaper.
When the deal to sell The Providence Journal was finally announced last week after the paper had been on the market for seven months, Gatehouse Media parent New Media Investment Inc. of New York was the buyer, trumping local bidders with a $46 million offer.
“We were not in the ballpark, really,” said John Howell, publisher of Beacon Communications Inc. and part of a group of local businessmen who attempted to buy the Journal. “The way we valued it was to take a look at the revenue it was producing and use a multiple to determine a price. We thought we were using a fair multiple, but obviously Gatehouse saw more.”
The price was higher than many expected, especially considering the deal did not include the prime downtown real estate of the Journal’s Fountain Street headquarters and nearby parking lots (which Gatehouse will rent).
Just last fall The Boston Globe and Worcester Telegram & Gazette, including the Globe’s valuable Boston real estate, were sold for $70 million. The Telegram & Gazette, minus its headquarters, then sold for an undisclosed amount that has been reported between $7 million to $20 million.
Howell’s group, Fresh Start LLC, which included fellow Providence Media Inc. publisher Barry Fain and East Bay Newspapers owner Matthew Hayes, plus Providence developer Arthur “Buff” Chace Jr., was the only local group to make it to the second and final round of bidding for the Journal, according to sources.
Multiple sources with direct knowledge of the deal said the total dollar value of Fresh Start’s bid matched Gatehouse’s $46 million, but would have included the downtown real estate, which Chace intended to redevelop. By removing the real estate, which former Journal owner A.H. Belo Corp. intends to sell, the offer was viewed as roughly $10 million short of Gatehouse’s bid.
Howell, who said he couldn’t discuss specifics because of a nondisclosure agreement, did not dispute the bid total. The sources said at least two other local groups put in preliminary offers, but didn’t make the final round.
Gatehouse Media was created in 2005 by New York private equity firm Fortress Investment Group after it had purchased an Illinois-based publishing company. Fortress’ placed Gatehouse on an aggressive national growth strategy focused on small community newspapers, both weeklies and dailies, producing “hyper-local” content.
The company entered the suburban Boston market with the 2006 acquisition of the Community Newspaper Company chain, then moved further into southeastern Massachusetts by acquiring the (Brockton) Enterprise, (Quincy) Patriot Ledger, Taunton Daily Gazette and Herald News of Fall River. It also owns the Norwich Bulletin in Connecticut.
Last year, Fortress pushed Gatehouse into a prepackaged bankruptcy and, once it emerged, placed it under a new publicly traded holding company, New Media, along with even more freshly acquired publications, including the Cape Cod Times and The New Bedford Standard-Times. It’s spent $151 million on acquisitions over the last 10 months, the company said in a statement.
Currently New Media owns 429 publications, 356 related websites and six yellow page directories in 24 states, according to its website.
Publications acquired by Gatehouse over the years have often witnessed downsizing as the organization looked to exploit economies of scale.
Gatehouse is currently building a “center for news and design” in Austin, Texas, that is expected to take over many production functions, such as page design and copyediting, now performed by the local papers.
“I will say I wouldn’t be surprised to see the editorial staff at the Journal cut by a third or half again by this acquisition,” said Bill Ostendorf, a former editor at the Journal and now president of Creative Circle Media Solutions in Providence, whose company builds websites – including PBN.com – and consults with publications on digital strategy. The Journal under Belo, which purchased the paper and several television properties for $1.5 billion in 1997, had already roughly shrunk its headcount in half since 2008.
Dan Kennedy, associate professor of journalism at Northeastern University, said he hoped that Gatehouse had pulled back from its most aggressive cost cutting.
“At the Standard Times and Cape Cod Times, the cuts they made hurt coverage, but were not devastating. Certainly the papers in eastern Massachusetts are bare bones operations,” he said.
While the purchase was uncharacteristic for Gatehouse, which has until now focused on smaller papers outside of metro areas, observers see two factors that likely attracted the chain to spring for a larger publication.
The first is the Journal’s Kinsley Avenue printing plant, which already increased revenue for Belo from the contract production of other publications.
Consolidating all or most of the Gatehouse New England papers, including those now printed by the rival Boston Globe, presents an opportunity for greater cost efficiency, Kennedy said.
The other piece of the Gatehouse strategy the Journal appears to fit is its new Massachusetts-based digital marketing arm Propel, which Gatehouse executives highlighted in a statement. The company can now use the Journal’s sales force to pitch an area from Massachusetts to Connecticut on digital advertising, websites services and search-engine optimization.
The Fresh Start group, had its bid been accepted, planned to draw on the reporting resources of its small community papers.
Fresh Start’s Fain said the purchase would have moved the Journal closer to the model of local bureaus and editions it abandoned in recent years.
“Using the assets of weekly newspapers already doing the local work and going to zoning meetings, there was an opportunity to gather news more extensively than the daily at a similar cost,” Fain said. “Being able to focus on local news is what we were hoping to bring to the table [as well as] community ownership of … an important institution.” •

The original version of this article incorrectly identified Dan Kennedy as an assistant professor of journalism at Northeastern University. He is an associate professor.

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