Who are the winners and losers of the bidding to acquire Newsday? The losers aren't Mort Zuckerman or Rupert Murdoch, and neither is the winner Cablevision (nyse:CVC), which paid about $70 million more than its competitors for the newspaper property.
One has to ask if Newsday is such a great property, why does it have its fourth owner since 2000? Others owning it since then have been in order: Times Mirror, Tribune, Sam Zell, and now Cablevision.
You have a dying industry represented by Newsday, coupled with a company struggling in its own markets, now thinking it can operate a business it's never had experience in. (Cablevision has never run a newspaper business before.)
Then you have others who made bids far below the $650 million bid by Cablevision, which pretty much ensured they would get the company. Zuckerman and Rupert Murdoch both bid $580 million each.
The deal includes Newsday, the Star Community of Publishing Group weekly shoppers, a portfolio of lifestyle magazines from Island Publications, an amNewYork, a New York City daily distributed for free.
So Cablevision probably vastly overpaid for this group of properties. Why did they do it?
Here's the official statement from James Dolan, Cablevision's CEO:
"Adding Newsday Media Group's superb assets to Cablevision's portfolio presents a multitude of opportunities: to provide consumers with additional quality content on multiple platforms, expand advertising opportunities for both entities and attract a larger audience than either company could on its own."
But as one writer has rightly asked, "...if someone can point out to me one example, anywhere, of something extra being gained from bouncing stories and staff back and forth from local TV and print operations, well, I'd appreciate it. Because I can’t think of any, and most of the bigger attempts in this space have not worked out."
This is the fantasy portion of the acquisition. It's not going to happen, even though some watching the situation attempt to use the dreaded word "synergy" to describe the reason for the transaction.
The pressure aspect has been the performance of Cablevision, which the Dolan family attempted to take public, and shareholders rejected as being too low an offer. Now there's pressure to perform from shareholders, which is behind the acquisition spending spree by Cablevision; with this deal coming on the heels of the Sundance one.
With Rupert Murdoch saying going on with the deal was uneconomical, Cablevision should have listened carefully. Murdoch looks at things from the long view, and he would have had that included with the price he offered for Newsday. If he felt more than that was too much to pay, more than likely it was. Murdoch was probably on the high end of what it was worth. That isn't too comforting for Cablevision and its shareholders.
There does seem to be an ego thing going on here too, as bragging rights to outbidding Zuckerman and Murdoch for the property are now in place, with a number of people hailing it as a good move. That may make the Cablevision leadership feel good and give them an ego boost, but I think in the not too distant future it will come back to bite them big time.
The winner in all this is Tribune and Sam Zell. He desperately needs to sell off some of the Tribune assets in order to pay for the debt he went into to buy the property. This is a big step toward that end.
I think not only was this a bad acquisition, but it will probably become a huge drain on Cablevision and its shareholders as the newspaper industry continues to collapse.
The reason larger newspaper companies attempted to buy the property, is there will be a few of them that survive, and eventually thrive, as the industry continues to shrink and consolidate. Those buying up properties like Newsday will pay a big penalty for their ignorance. Cablevision shareholders and the Dolan family will find this out the hard way.
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