Shares of The McClatchy Co. “could be worthless,” a new Morningstar report says.“After lowering our sales and profitability forecast, we’ve reduced our fair value estimate on McClatchy’s shares to $0 from $2 each,” stock analyst Tom Corbett wrote. “We think the combination of McClatchy’s exposure to the decline in print ad revenue, high fixed costs, and substantial debt burden, is such that the firm will eventually have to be managed to satisfy its obligations to its creditors at the expense of its equity shareholders.”
McClatchy stock (NYSE: MNI) closed Friday at $1.63, down 36 cents, or 18%. In the past 52 weeks, McClatchy shares have lost 87.5% of their value.
Corbett is the same analyst who last July wrote that GateHouse Media stock “could be worthless.” At the time, GateHouse shares traded on the New York Stock Exchange and were priced at a little above $1. The stock was delisted by the Big Board in October and now trades on the Over The Counter Pink Sheets. Friday the stock (OTC: GHSE.PK) closed at 10 cents a share, up a fraction of a cent from the open.
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The Morningstar report traces McClatchy’s woes to the 2006 blockbuster acquisition of Knight Ridder for $4.6 billion, which it called a “bold bet on the future of print journalism.”Holy bankruptcy, Batman!
Since then, the Chicago-based independent stock research firm said, “McClatchy has struggled under the multiple weights of declining revenues, high debt, outsized exposure to troubled housing markets, and the continuing shift of readers and advertisers from print to online. Given the persistence and severity of these conditions, we think equity shareholders are at risk of losing the entire value of their investment.”
Morningstar revised its estimates of McClatchy revenue declines, saying it expects a drop of 16% this year, followed by a 12% decline in 2009. Previously, Morningstar estimated a 15% drop in 2008, followed by a 5% decline next year.
Morningstar also estimates that McClatchy’s EBITDA margins -- earnings before interest, taxes, depreciation, and amortization divided by total revenue -- to shrink to an average 15% annually over the next five years. McClatchy posted a 25% EBITDA margin in 2007.
McClatchy’s “declining revenues and its high debt burden are such that management will eventually have to manage the company to appease creditors at the expense of equity shareholders,” Corbett wrote. “Given the priority claim McClatchy’s creditors have on its assets, we think shareholders are at risk of being left empty-handed.”
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20 comments:
I'd have argued the zero price target, but the NYSE is lifting the sub penny halts Monday and a Morningstar downgrade is a death blow.
I bid 10 million for the KC Star. Maybe I can sell it to Rupert after I fire the scum that floated to the top!
Ironic isn't it? Capital Cities bought the Star for about 68 million in the 1970's which was a 100% premium over the closed stock price at the time. It has now gone full circle and is once again valued at just about the same as when Harry Truman worked in the Mail Room. ;-)
Monday should be interesting should the WSJ get hold of this.
The speed of McClatchy's apparent collapse is amazing.
I used to say McClatchy was a "slow motion train wreck" -- well, forget the slow motion part.
If McClatchy folds what will you rename McClatchy Watch? Better start thinking of a new name SOON!!!
Those of us that work at KC Star when Cap Cities owned it remember what it's like to be treated like an asset. Those days were really good. We then were proud to be associated with a class organization. Now I' m speechless because of the way it is run and nothing changes except send jobs to India. They would send the printing but the shipping cost would be to high.
OK 9:33 I need a stock lesson. What does lifting the sub penny mean?
...How about re-naming the blog " It's mourning in McClatchyland " ?The situation reminds me of the closing scene in Planet of the Apes, when Charlton Heston finds the head of the statue of liberty and proclaims ' They did it, they finally did it '.
The news about MNI stock being "worthless" came out too late Friday to affect the price.
Will be interesting to see how low it goes on Monday.
Isn't that just one opinion (Moringstar) will it really matter?
...It'll only matter to folks who invest, or think they want to invest, in McClatchy stock for the purpose of MAKING MONEY. To everyone else...It doesn't matter.
McClatchy, at least their editors and news staff, seem to think that the answer to any economic issue is more regulation and more taxation.
Perhaps they should take their own advice. They should demand a regulatory "board" made up of Barny Frank, Chris Dodd, Nancy Pelosi and Harry Reid. They should cut salaries of all employees to the level of a senior mail room clerk (after all it is fair - how can you say that one human being is worth more than any other human being) and give the rest to the government to enhance our collective experience under our beloved Comrade Maximum Leader-elect.
Seeking truth through regulation and taxation.
The Sub Penny rule dictated that when a given stock dropped below 1.05 the company was notified and at 1.00 the stock trading on it was halted for a period of time to protect it from going to ZERO.
On Monday, the Sub Penny rule is being taken down. All the stocks that had gone below one dollar will be on their own.
McClatchy's interest in this development is that on the last business day before the rule is lifted, a veteran CFA for the most respected authority on Mutual Funds and EFTs (MoriningStar) has declared their stock as worthless.
There are approximately 290 institutional investors holding McClatchy Stock right now. Those institutional investors are comprised of Mutual Funds, Pension Funds, EFTs and Index Funds holding hundreds of thousands to millions of shares each. If only a portion of them enter sell orders on Monday, and it is a down day, McClatchy will slip below the one dollar level.
Below one dollar and the company not only faces a warning from the NYSE, they can be dropped from the various Indices which buy stocks on a percentage basis in their respective sectors. An example would be the S&P 500. Index funds that track that group buy shares automatically on a weighted percentage basis. Anyone dropped from that group, their shares are liquidated automatically.
If none of this is enough. It is also more expensive to buy stocks valued under 1.00 because the exchange fees are higher and brokerages do not keep these shares on hand.
This report is hugely significant because it plainly states the obvious. If the company has to become managed outside the board of directors interest, shareholders will receive nada, nothing, zilch. There is only one solution for current shareholders. Sell and at least salvage something.
Thanks you very much 11:58. Wish I understood this better but you really help.
Word on the street in Fort Worth is there is an off sight meeting planned for mid week to plan out for staff reductions for late this year.
It's time for McClathcy to go under and get the whole damn thing over....nobody should have to live like this. I'd liked to know why none of these publishers say enough is enough. They care nothing about anybody except themselves.
Newspaper publishers like McClatchy et al are Ideologues and those that they hire are Ideologues first a foremost. Promoting their ideology is their business. The newspaper is simply a tool to do that with.
Just listen to them talk. They have given up entirely on print and plainly state that they are converting entirely to on line publishing. They will cannibalize the print operations for as long as possible until their creditors put a stop to it.
This report means that MNI can forget any institutional investments in the forthcoming future. It serves as fair warning that MNI is worthless, and any institution investing the money of others in it could face lawsuits for making unwise investments.
What it means for MNI's future is equally obvious. There will be no more loans because banks face similar challenges if they give MNI any money. So the company has to make it on revenues, which are declining because of the recession, or cost-savings. The easy cost-savings have been achieved, so this means even more layoffs next year. They could try to get out of the hole Pruitt dug by selling off some papers, but this market is ferocious and even healthy newspapers like San Diego and Austin are not moving.
We can all draw our conclusions based on this. There is no future left in this company. Morningstar doesn't mention it, but I see the only way out is bankruptcy and reorganization. It would get rid of Pruitt and the board of directors who put us in this mess.
Pruitt is not responsible for the decline in circulation. Liberal loons in the newsroom are responsible for cancellations. Piss off half of your potential customer base every day and, gosh.... I am going out of business. Duh.
Gotta fins some work now; gotta get myself a job. You know, the sun is shining westward. Guess I'll sadddle up my frog and get out of here.
This means the family is wiped out.
No, the family is not wiped out, and they are not going to be. If you check the insider trading you will find that the vast majority of their shares are concentrated into two accounts containing in excess of 3 million shares each, while all other family members have a relative pittance. What they have been doing is granting themselves huge stock options and exercising them for cash while receiving dividends in excess of 20%. They are bleeding the company.
The majority of the McClatchy money is protected in 4 family trusts. Being a corporation the trusts and the McClatchy's themselves are exempt from personal liability when the company goes under. Any lawsuits are already accounted for and settlement amounts I am sure are Insured. If not, they have an army of lawyers who can drag it out till the end of days and get the amounts whittled down over time though appeals.
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