Daily’s new parent racks up debt

July 1, 1993

StoryImage( ‘/Images/Story//Auto-img-117753058520920.jpg’, ”, ‘Michael Reed‘);

Annual report shows GateHouse Media’s debt at $690 million as of March 9

Although Rockford Register Star Publisher and President Fritz Jacobi claimed at an April 12 press conference that the daily newspaper’s new parent company, GateHouse Media, Inc., is not a “venture capitalist,” GateHouse’s recent history suggests it is racking up quite a debt.

GateHouse, based in Fairport, N.Y., has been snatching up small- and medium-sized newspapers throughout the country, racking up $690 million in debt as of March 9, according to its annual report, the local daily reported April 13.

GateHouse, which went public on the New York Stock Exchange (NYSE: “GHS”) in 2006, was selling for $21.38 per share April 24.

The company owns more than 450 community publications, including 84 daily newspapers in 19 states across the country, and more than 245 related local Web sites, according to GateHouse’s Web site, gatehousemedia.com. For a complete list of newspapers in Illinois owned by GateHouse, see the end of this article.

Jacobi, who will remain as president and publisher, announced April 12 that the Register Star had been sold by Gannett Co., Inc., to GateHouse as part of a $410 million deal. The deal also includes the GateHouse purchase of three other Gannett daily newspapers—the Norwich (Conn.) Bulletin, the Observer-Dispatch in Utica, N.Y., and The Herald-Dispatch in Huntington, W. Va.

McClean, Va.-based Gannett, which publishes 89 daily newspapers in the United States, including the USA Today, had owned the Register Star since 1967. The Register Star, with a reported circulation of 63,372, will be one of GateHouse’s largest newspapers, once the deal is completed within the next 30 to 60 days.

The deal comes on the heels of an April 11 GateHouse purchase of nine publications from The Copley Press, Inc., for a net price of approximately $380 million. The nine publications include seven daily and two weekly newspapers, including the Peoria Journal-Star and Springfield Journal-Register in Illinois. GateHouse also owns the Freeport Journal Standard, which has a circulation of 12,723 daily newspapers, and the Freeport shoppers The Scene and Freeport Ink.

As reported by the Boston Globe Aug. 1, 2006, the company completed a similar deal in 2006, paying $410 million for a number of suburban newspapers near Boston and $230 million for “Community Newspapers Co., a chain of four dailies and 93 weeklies and other newspapers, owned by Patrick J. Purcell, publisher of the Boston Herald

As reported by the Boston Globe: “‘They’ve been piling up debt in order to grow,’ said Lou Ureneck, director of Boston University’s business and economics journalism program. “‘The danger from a public point of view is that the debt burden gets so high that the company begins to drastically reduce its expenditures on the coverage of news.’

“GateHouse, with headquarters in Fairport, N.Y., was purchased last year by a New York hedge fund and venture capital firm, Fortress Investment Group LLC. It was known then as Liberty Group Publishing, but its name was changed in May to GateHouse Media. Fortress also invests in assisted-living centers, cell phone towers, aircraft leasing and large real estate projects.

“GateHouse says it wants to grow in regions where it can build clusters of ‘hyper-local’ publications that have monopolies on news in small cities and towns. … It is also attempting to build a network of local Web sites that would allow it to leverage its reach into suburban homes.”

In the late 1990s, Liberty Group Publishing, formerly of Downers Grove, Ill., purchased more than 160 U.S. newspapers from Canadian company Hollinger International, Inc. In 2005, Liberty was bought by New York private equity firm Fortress Investment Group LLC. According to MediaOwners.com, Fortress “is a global alternative investment and asset management firm founded in 1998 with approximately $20 billion in equity capital under management.”

With regard to the Boston-area purchases, the Boston Globe added: “Already, it is cutting costs at the properties south of Boston. Community Newspapers and MPG had competing newspapers in such communities as Kingston, Marshfield, Pembroke and Plymouth. Last week, GateHouse said it would combine some operations of the two branches, but did not indicate whether any of the newly acquired weeklies would close.

“GateHouse declined to comment, but said in a statement its goal would include ‘minimizing potential staff reductions.’ Last week, GateHouse executives held meetings with Community Newspapers and MPG employees to discuss the changes, which, in addition to an unspecified number of layoffs, will also include closing MPG’s headquarters…and converting tabloid newspapers to a broadsheet format.”

The Boston Globe article also included the following analysis: “‘GateHouse’s investors will likely be looking to cash out and sell their newspaper business within three to five years,’ said media consultant Peter Krasilovsky, principal of Krasilovsky Consulting of Carlsbad, Calif.

“‘Directories, and community content, and retail shoppers, are all converging together,’ he said. ‘These guys think they can go in, buy undervalued properties, do some investment, and really prepare for the next generation of local business marketing.’”

GateHouse is headed by Michael Reed, 40, who took over as CEO in January 2006. A profile on MediaOwners.com said that prior to joining GateHouse, Reed was the CEO of Community Newspaper Holdings Inc. (CNHI), “an Alabama firm that publishes newspapers in small and mid-size markets.”

According to MediaOwners.com: “Community Newspaper Holdings, Inc. was founded in 1997 by Ralph Martin, a former Thomson Newspapers executive. The company owns more than 200 publications in 20 states, with a significant portion of these in Oklahoma and Texas. CNHI controls costs by publishing newspaper supplements and advertising circulars within their established newspaper clusters. The company reported revenues of $410 million in 2004.”

In Illinois, CNHI owns the Danville Commercial News, Effingham Daily News, Mt. Vernon Register News and Shelbyville Daily Union.

GateHouse Illinois newspapers are located in four major “clusters”—one in northern Illinois, a second in suburban Chicago, a third in central Illinois and a fourth in southern Illinois. A “cluster” in the newspaper industry refers to one company owning newspapers near each other so the publisher can save money on printing plants and other technical operations.

Jacobi said at the April 12 press conference that it was “too early to talk about specifics,” but that the Register Star would possibly work together with the Freeport Journal Standard on advertising “combo buys” and editorial content. He said readers and advertisers would see little change in the Register Star, and there would be no change in either advertising or subscription rates.

“We will look the same as we do now,” he said.

Jacobi added that one of the biggest concerns was editorial control, which he said will remain at the local level. “I think it’s not only important for me, but for my management staff to be involved in the community,” he said.

The press conference April 12 came just one hour after the newspaper’s staff of 420 full- and part-time employees was notified of the sale by Mary Stier, Gannett Midwest Group president and Des Moines Register publisher. Stier was publisher of the Register Star during the 1990s.

The Des Moines Register, incidentally, has seen many changes since Stier took over, many of them unpopular with Iowa readers. Changes included the loss of Editor Dennis Ryerson, the elimination of the popular Sunday “Big Peach” sports section (printed on peach paper), and the move to a smaller news

paper size and shrinking news coverage. About a year ago, some residents began a movement to boycott the Gannett-owned paper.

Jacobi said the staff meeting April 12 lasted about 45 minutes, and many of the employees voiced concerns about their benefits and health insurance. He said those plans would carry over under the new ownership.

“I thought they took it as well as they could,” Jacobi said of the staff’s reaction.

He said the daily would retain the same editorial management, and the staff jobs and benefits were secure. He also said Advertising Director Lani Renneau will be leaving the daily in an unrelated move to take a position as advertising director at the Kenosha (Wis.) News. Jacobi said the Kenosha paper had been recruiting Renneau, who has family in the area.

Absent from the press conference was the daily’s executive editor, Linda Grist Cunningham, who has overseen the newsroom since 1991.

Jacobi said the sale of the daily, which has been in publication in various forms since 1840, had been in the works since last fall, and he learned of it in January. He said some of the management had been informed of the deal in recent weeks.

A 23-year Gannett veteran, Jacobi said he was not sure who initiated the sale—Gannett or GateHouse—although he said he believed the Register Star was leaving Gannett on good terms. Jacobi said it was reassuring when his old boss gave him “a nice, big hug.”

Sue Clark-Johnson, president of Gannett’s Newspaper Division, said in a press release: “This sale makes perfect sense for Gannett as we move forward under our strategic plan. It’s very difficult to say good-bye. We deeply appreciate all the hard work by the employees of these terrific newspapers over the many years they have been part of the Gannett family.”

Jacobi speculated that GateHouse was interested in the Register Star for three main reasons: location, size and technology.

As already mentioned, the Register Star will be part of a northern Illinois “cluster,” and will be one of the largest newspapers owned by GateHouse once the deal is complete. Additionally, within the last year, the Register Star built and began using a new $26.7 million press and building. While printing the local daily, the press was also to be used for various projects, including many Gannett print jobs.

Within the last few years, the Register Star has launched other initiatives in addition to the daily newspaper, including a re-design of its Web site, the creation of a Spanish-language weekly newspaper, a television partnership with the local NBC affiliate, and the establishment of The Weekly, GO Now and Rockford Woman magazine and related Web site.

As a result of these added facets of the business, Jacobi said about 25 percent of the Register Star’s revenue comes from outside the daily newspaper.

As Jacobi noted at the April 12 press conference: “The media landscape is changing. Really, until 10 years ago, our business model was simply putting news on newsprint. All of a sudden, the media landscape is changing with the Internet and other things.”

The Rockford Register Star was created in 1979 when Gannett merged the Register Republic (evening newspaper) and the Rockford Morning Star. Gannett had owned both newspapers since 1967.

According to the daily’s Web site, the Register Star traces its roots back to 1840 when the Rockford Star was established as the Democrats’ response to the weekly Whig newspaper The Rock River Express, owned by James Gray.

Gatehouse in Illinois

In Illinois, GateHouse owns the following newspapers by category:

Daily newspapers: Benton Evening News, Canton Daily Ledger, Carmi Times, Du Quoin Evening Call, Eldorado Daily Journal, Advocate Press (Flora), Freeport Journal Standard, Harrisburg Daily Register, Star Courier (Kewanee), Macomb Journal, Marion Daily Republican, Daily Review Atlas (Monmouth), The Olney Daily Mail, Pekin Daily Times, Daily Leader (Pontiac) and Daily American (West Frankfort).

Paid weekly newspapers: Addison Press, Times Record (Aledo), Berwyn Life, The Weekly Times (Carmi), Randolph County Herald Tribune (Chester), Downers Grove Reporter, Darien Suburban Life (Downers Grove), Westmont Progress (Downers Grove), Hinsdale Suburban Life (Downers Grove), Lemont Reporter (Downers Grove), The Du Quoin News, The Ashley News (Du Quoin), The Blade (Fairbury), Home Times (Flanagan), The Geneseo Republic, Elmhurst Press (Glen Ellyn), Lombard Spectator (Glen Ellyn), Countryside Suburban Life (Glen Ellyn), Villa Park Argus (Glen Ellyn), Carol Stream Press (Glen Ellyn), Bloomingdale Press (Glen Ellyn), Itasca Press/Roselle Press (Glen Ellyn), The Spokesman (Herrin), La Grange Park Suburban Life, Murphysboro American, Newton Press-Mentor, Norris City Banner, Brookfield Suburban Life (North Riverside), Westchester Suburban Life (North Riverside), Suburban Life (North Riverside), The Weekly Mail (Olney), Oquawka Current, Orion Gazette, Gallatin Democrat (Shawneetown), Ridgeway News (Shawneetown), Press (St. Charles), Huntley Farmside (St. Charles), Steelville Ledger, Teutopolis Press and SI Trader (West Frankfort).

Free weekly newspapers: The Paper (Galesburg), Geneva Republican, Glen Ellyn News, Lisle Reporter, Batavia Republican (St. Charles), St. Charles Republican and Wheaton Leader.

Shoppers: White County Shopper News (Carmi), CCAP Special (Flora), The Scene (Freeport), Freeport Ink, Fulton County Shopper, Town Crier (Fulton County), Strictly Classified (Fulton County), Star Power (Fulton County), Select Homes (Fulton County), Money Stretcher (Galatia), Henry County Advertiser, Freetime (Herrin), McDonough County Shopper (Macomb), Marion Daily Extra, Pennysaver (Monmouth), American Monday (Murphysboro), Jasper County News Eagle (Olney), Advantage (Olney), The Tazewell County Shopper (Pekin), Livingston Shopping News (Pontiac), Springfield Shopper and Franklin Press (West Frankfort).

from the April 25-May 1, 2007, issue

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