This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Deal: Beating Murdoch on His Home Turf

NEW YORK ( TheStreet) -- Some M&A maneuvers are so complicated they obscure the details of any one transaction. And that's very much the case these days with a three-step deal that Newcastle Investment (NCT) is putting together.

Step 1: Newcastle, an affiliate of Fortress Investment Group (FIG) acquires Dow Jones Local Media Group for $82 million. Step 2: Newcastle restructures debt-funded GateHouse Media,which is also a Fortress affiliate, through a prepackaged bankruptcy. Step 3: Newcastle spins off a new entity that combines a post-bankrupt GateHouse with Dow Jones Local Media Group.

The spunoff entity, to be named New Media, is expected to be 60% owned by Newcastle -- a majority the company plans to obtain through its conversion into equity of more than half of GateHouse's $1.2 billion in debt and through its donation of $54 million in Dow Jones Local Media Group equity. Then, from the free cash flow generated by its hyperlocal media operations in more than 400 communities, New Media starts paying 20% dividends.

That's the plan, anyway, as presented by Newcastle during a conference call earlier this month. It's a good plan, too, except that its many moving parts give short shrift to the terms by which Newcastle secured Dow Jones Local Media Group from Rupert Murdoch's News Corp. (NWSA) Murdoch is supposed to know and value newspapers, but in this case Newcastle clearly got the better of him.

Never mind that on announcing the sale, but before its terms were disclosed, Murdoch lieutenant and News Corp. CEO Robert Thomson called the jettisoned properties no longer "strategically consistent with the emerging portfolio of the new News." Thomson's declared motivation for selling detracts not at all from Newcastle's walking off with Dow Jones Local Media Group's 33 publications for a nominal EBITDA multiple of 3.4 and, once $33 million in third-party appraised real estate is removed from the transaction, for an effective EBTIDA multiple of 2.0.

Although this multiple drops even lower (to 1.6, to be precise) after consideration of $10 million in already identified cost reductions, let's overlook such synergies for now and defer instead to Newcastle chairman Wes Edens. "We paid roughly $50 million for an asset that we think is going to produce $25 million in cash flow next year," he said during the conference call about his company's acquisition of Dow Jones Local Media Group. "So maybe not the growthiest asset in the world ... but $50 million for $25 million in this market we think is a tremendous asset."

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
NCT $5.22 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%
GOOG $540.11 0.00%
TSLA $247.73 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs