The Seattle Times' valuation: A Times reporter rebuts a Crosscut story

[Pryne is business reporter for the Seattle Times. This piece also appeared at Letters to Jim Romenesko.] Before Bill Richards suggests the Seattle Times news staff (which in this case means me) is ignoring a big, negative story about the parent company, he should get his facts straight. Richards says we've failed to report a 68 percent decline in the value of The Seattle Times Co. over the past 18 months. He bases his conclusion on two sources: McClatchy's latest quarterly report, which estimates the "carrying value" of its 49.5% interest in The Times at $89.9 million, and a $286 million estimate of the "market value" of that same 49.5% (then owned by Knight Ridder) by Morgan Stanley in late 2005. Those numbers are apples and oranges. For starters, "carrying value" and "market value" aren't always synonymous. McClatchy's Elaine Lintecum, quoted in Richards' story, told me months ago that the carrying value her company had placed on its stake in The Times wasn't necessarily what it thought it would get if it put the asset up for sale. The $286 million Morgan Stanley "market value" figure also is problematic. It isn't what Richards says it is. Richards says it was produced by Morgan Stanley investment bankers advising Knight Ridder when it put itself up for sale. Wrong. It was contained in a table in a November 2005 research report on Knight Ridder by a Morgan Stanley ANALYST, operating independent of the investment bankers. He simply estimated the entire Seattle Times Co.'s market value and multiplied by .495. As Richards himself points out, that methodology is suspect -- the Blethen Corp.'s 50.5% controlling interest in The Times is probably worth a lot more than Knight Ridder/McClatchy's 49.5%. What's more, the Morgan Stanley analyst's estimate hardly represented a consensus: In March 2006 (which was when Knight Ridder was sold, not late 2005 as Richards reports), a Merrill Lynch analyst estimated the value of Knight Ridder's stake in The Seattle Times at "anywhere from $50 million to a couple of hundred million pre-tax," adding that "we have chosen to focus on the low end of the valuation range." She put the pre-tax value of ALL of Knight Ridder's non-Internet equity investments (including The Times, two newsprint mills, and several other companies) at just $250 million. There's no question the market value of The Seattle Times Co. (and other newspaper companies) has dropped significantly in recent years. Advertising revenues have declined. The Times -- and the industry -- are hurting. All this has been reported in the pages of The Times. But Richards' assertion that The Times Co. has lost 68 percent of its value in 18 months stands on a shaky foundation. And his charge that the Times news staff is giving the company a pass is groundless and self-serving. Before we start throwing numbers around, we like to know what they mean. ___ Bill Richards responds: Re: Eric Pryne's note today, criticizing my Crosscut piece this week about reporting on the sinking valuation of The Seattle Times. I think if Pryne looks again, he'll see that our facts are indeed accurate. Both my Crosscut story Wednesday, and a previous Crosscut piece by me on the decline in Times value on April 5 clearly noted the difference between the possible market value of McClatchy's minority stake in the Seattle Times Co. and the book value of that stake. Our story this week is pegged on McClatchy's latest quarterly security filing which says it dropped the book value of its Times holding by 12% since Jan. 1 -- apples to apples, to use Pryne's metaphor. Pryne also seems to have a problem in that I cited Morgan Stanley's Nov. 29, 2005, appraisal of Knight Ridder's holdings, projecting a market value of $286 million for KRI's 49.5% minority share of The Seattle Times Co. He contends that appraisal wasn't connected with Knight Ridder's decision to put itself up for sale, since the sale was concluded in March of 2006, four months after the report was issued. In fact, Knight Ridder announced that it was putting itself up for sale on Nov. 14, 2005, after it hired Morgan Stanley to advise it on that planned sale and two weeks before Morgan Stanley's appraisal was published. In its appraisal, Morgan Stanley noted it used its valuations of Knight Ridder's assets, including its Seattle Times Co. stake, to prepare a discounted cash flow analysis "in an effort to highlight what KRI is potentially currently worth, that is before any takeoverâ'ꂬ¦" Pryne also notes that another Merrill Lynch equity analyst placed a less specific value on Knight Ridder's stake in The Times Co. We chose to cite Morgan Stanley's specific market-value number because, as a financial adviser for the proposed Knight Ridder sale, Morgan Stanley had access to information not available to Merrill's analyst. All this, of course, was reported by Crosscut, not the Seattle Times, which is the point. Eric Pryne responds: Richards doesn't address some of my points, and misinterprets others. I don't disagree that The Seattle Times Co. has lost significant value in recent years. I do disagree with Richards' misuse of information in an attempt to quantify that decline, and his criticism of me for failing to do likewise. I reviewed all the same numbers Richards cites before I ever saw his piece, and concluded independently that there wasn't enough substance there to warrant a story. The Seattle Times Co. is very secretive. That's been a challenge and a frustration to me and other reporters covering the company. But that doesn't mean we should weave the bits of information that are available about the company's finances into conclusions that can't be supported. A few final points: -- I never said the November 2005 Morgan Stanley research report on Knight Ridder was unrelated to that company's decision to put itself up for sale - the connection is clearly stated throughout the report. My only point was that Richards got his dates wrong: he said McClatchy bought Knight Ridder in late 2005, when in fact that didn't happen until March 2006. -- Nowhere in his latest piece, or his April story, does Richards point out the difference between carrying value and market value. -- It's legitimate to compare McClatchy's most recent $89.9 million figure for the carrying value for its stake in The Times with its $102.2 million valuation of that interest at the end of 2006, although a 12% drop in the value of any newspaper company these days is hardly breaking news (as Richards notes, McClatchy's stock price has dropped 44% this year). Trouble is, Richards didn't stop there - he compared the latest McClatchy figure with the $286 million "market value" the Morgan Stanley analyst assigned to that same stake in November 2005, and used that to proclaim in his lede that The Times' value had declined by more than two-thirds. As I noted in my initial response, that's an apples-to-oranges comparison. -- If the Morgan Stanley analyst had access to inside information from the Morgan Stanley investment bankers who advised Knight Ridder, as Richards alleges, that would be a breach of the "Chinese wall" that's supposed to prevent conflicts of interest inside big Wall Street firms. What's more, the analyst told the Poynter Institute's Rick Edmonds at the time that the bulk of his report, including most of the numbers, represented "informed speculation" rather than fact. In the entire 32-page report, The Seattle Times Co. merited just once sentence of text and one line in a table.