Thursday, May 17, 2007

Bank Window Closed to Sun-Times Group

Cyrus Freidheim Jr., CEO of the Sun-Times Media Group Inc., was blunt with Wall Street analysts this week.
Amid high talk of building the newspaper company's "brands" (it has over 100 titles) and doing more on the web, Freidheim also revealed something else--his company can't get a bank loan.
This is quite a revelation. In everyday terms, that's akin to not being able to get a credit card, auto loan or mortgage.
Indeed, one of Freidheim's top priorities, since taking over last November, was securing money to buy new equipment, computer systems, and so on. Credit is the lifeblood of any company. Apparently, the Sun-Times Media Group's financial state is so rickety that it's too great a lending risk--even for Chicago's hometown banks, which are known to do a favor or two for local businesses in a jam.
This is not good.
Without the elbow room of a new credit line, Freidheim's company is in a real bind--caught between declining revenues and increasing expenses. To shore up operations and win lender confidence, the CEO may be forced to go beyond the cost-cutting and strategic plans he outlined in the May 16 investor meeting.
If so, here's a few areas ripe for consideration:
--Close, sell or merge publications. Already the company says it's going to shut about 25 publications, mostly free shoppers. That's not going to be enough. The company's far-flung suburban properties could be re-examined with an eye toward scuttling some marginal suburban newspaper weeklies or, at least, merging them into each other when it makes geographical and operational sense.
--Consider dumping the Saturday or maybe even Sunday Sun-Times. How much does it cost to produce those papers over the weekend, compared to what they make? It wouldn't be a surprise if the expense of printing and delivery (especially with gas prices going up) outstripped the benefits. Would the company be better off doing a weekend print edition and putting the Saturday news product online? Or vice versa? (It's already doing a free daily afternoon edition online).
--Renegotiate labor deals. Having suffered under the deplorable Conrad Black-David Radler management regime, the newspaper's editorial union played hard ball and got a decent contract (especially in an era of declining ad revenues). However, management will be forced to re-evaluate all fixed costs--just as the airline, auto and countless other unionized industries are being compelled to do. That may mean asking for concessions or givebacks before the current contract expires.
--Balance the web vs. print needs. Wall Street gets excited hearing about old-line newspaper firms going digital. But, the company shouldn't get so far ahead of itself that it burns through needed cash by hiring scores of content managers, sales people and producers. True, society is moving toward a digital information world, but we're not totally there yet. Feeding the web and starving the print is not a solution. Indeed, starting up new or parallel web products at an ailing newspaper company requires some managerial moxie. Remember that demand for online talent is great (and expensive) and it always takes longer than expected for web-related revenues to cover costs.
--Layoffs. This should be the last resort but, let's face it, some cuts are inevitable--even at a company where staff levels have been stagnant for years. It's going to hurt.
--Don't count on a buyer. One industry analyst asked Freidheim if the company is going to be sold. He rightly said that was not the group's main priority. My question is: Who would buy it? As a journalistic enterprise, the flagship Chicago Sun-Times is doing a terrific job. But as a business proposition? Well, that's another story.
Bigger and better newspaper chains have been on the block recently and have had a awful time getting the right buyers. The Tribune Co. probably got the best deal it could by selling to billionaire Sam Zell and an Employee Stock Ownership Plan. But that transaction calls for taking on nearly $13 billion in debt!
Come to think of it, when compared to the Tribune's debt load, the Sun-Times Media Group's financial problems look almost manageable.
Even so, there's still much to do before CEO Freidheim can go to his friendly banker and get more than just a handshake and a smile.

(If you want to hear Freidheim's investor talk via webcast click here.)


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