News Corp (NWS -0.20%) only recently spun off its television and film company, 21st Century Fox (FOX), into its own independent entity, but the now slimmer News Corp. is not done divesting assets. This past week, the company sold off a handful of local papers -- known as the Dow Jones Local Media Group -- to private equity and hedge fund firm Fortress Investment Group (NYSE: FIG). The deal occurred because, as News Corp. CEO Robert Thomson said, the publications were not "strategically consistent" with the company. However, it's also worth highlighting the continued interest in local newspapers.
The deal
The sale of the papers came in at $82 million, though little else is known because News Corp. was not required to disclose terms -- indicative of a relatively small deal. Since originally acquired in 2007 along with The Wall Street Journal, the papers were apparently never held too close to the company, as News Corp. first tried to sell the group just a few months after buying them. It withdrew its interest in 2008 due to a poor environment.
As News Corp. is now a pure play on the publishing business, it's interesting that management found the papers unaligned with the company's strategy. It is both a very obvious and very understated statement that "the newspaper business is under siege," but financial bigwigs, from Warren Buffett to the Koch brothers, have been busy accumulating smaller publications and clearly recognize a future value in the businesses. News Corp. seems to be drifting the other way with its sale of local rags such as New Bedford, Mass.' The Standard-Times, Portsmouth, N.H.'s Herald, and Medford, Ore.'s Mail Tribune.
The company still owns the Journal, as well as other high-visibility publications like the New York Post.
A better fit
The Dow Jones Local Media Group was clearly of little financial or strategic importance to News Corp., regardless of the fact that local papers seem to be the only way to make money on print news. For Fortress Investment Group, though, a firm known for making money off troubled assets, the papers may prove more valuable.
Fortress is the backer behind Rochester, N.Y.-based GateHouse Media, a local-oriented publishing company that has been mired in debt and just recently entered bankruptcy. The resulting company, managed by GateHouse executives but owned by Fortress vehicle Newcastle Investment, will eventually be a publicly traded empire of daily and weekly periodicals scattered around the country. Clearly, the former Dow Jones properties have a more appropriate home with Fortress/Newcastle/GateHouse.
The implications for News Corp. investors are minimal here, but perhaps a future glance into the reorganized GateHouse is worth considering -- if you believe the actions of The Oracle of Omaha.
