Newspaper Chains Pay Up for Web Companies

By Martha Graybow

NEW YORK (Reuters) - Newspaper publishers, often seen as stodgy and slow-growing, will pay whatever it takes to grab a bigger piece of the fast-growing online advertising market -- if two recent deals are any indication.

The New York Times Co.'s purchase of, announced on Thursday, and Dow Jones & Co. Inc.'s Inc. have raised eyebrows because the deals are much more richly valued than traditional newspaper acquisitions.

But analysts say the prices may be what newspaper companies must pay if they want to bulk up their Internet operations. Because few Internet content companies are for sale, they say, publishers are jumping on what they can find.

"Internet valuations are back in a big way," said Morgan Stanley analyst Douglas Arthur. "There are not that many properties out there that have survived through the bubble still intact, with a reasonable business model and good share of traffic on the Web, and apparently, they are going to go for a big price."

Analysts say The New York Times, which is buying from magazine publisher Primedia Inc., is paying a hefty price for the consumer-focused Web site by virtually any measure.

Primedia is getting 30 times's 2004 earnings before interest, taxes, depreciation and amortization, a key industry measure known as EBITDA. The New York Times said that multiple falls to 23 based on 2005 projections of financial results.

In contrast, newspaper chain Lee Enterprises Inc. recently agreed to pay about 13.5 times EBITDA in its $1.4 billion buyout of Pulitzer Inc., one of the biggest newspaper deals in recent years.

But the Internet also is growing much more quickly than newspapers, which have been mired in an ad slump over the last several years and are struggling with declines in readership.

The Internet is the fastest-growing advertising outlet, even though the dollars are minuscule compared with other big media like television and newspapers.

In other recent deals, The Washington Post Co. recently bought Web magazine Slate from Microsoft Corp. to get more online readers and ads. The company did not disclose the purchase price, which some have estimated at less than $20 million.

More deals are expected. Possible targets include financial news site which recently hired bankers to consider options that include a sale.

Ryan Jacob, portfolio manager of the $70 million Jacob Internet Fund, said other attractive companies that could be eyed as acquisitions include CNET Networks Inc. which operates a technology news site, and women-oriented iVillage Inc.

CNET and iVillage appeal to advertisers because they target very specific audiences, said Jacob, whose fund owns small stakes in both.

Analysts say that while premium Internet companies may be commanding high prices, newspaper chains also must prove to investors that these deals pay off.

The agreement is "a major 'show me story'" for The New York Times, Credit Suisse First Boston analyst William Drewry said in a research report to clients.

Debt rating service Standard & Poor's on Friday changed its outlook on The New York Times to negative from stable, citing the deal. A negative outlook indicates there is a greater chance of a rating downgrade over the next two years, which could raise borrowing costs.

New York Times stock closed down $1.05 at $37.20, while Primedia shares gained 15 cents to $4.20, both on the New York Stock Exchange.

Copyright 2005 Reuters Limited.

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