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The Honolulu Advertiser
Posted on: Sunday, June 6, 2010

Black paying $125M for Advertiser

 •  Advertiser writes final chapter in 154-year story

By Rick Daysog
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

The Honolulu Star-Advertiser's nameplate is already in place at the Honolulu Star-Bulletin's Restaurant Row offices.

ANDREW SHIMABUKU | The Honolulu Advertiser

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Honolulu Star-Bulletin owner David Black is paying about $125 million to acquire The Honolulu Advertiser.

The sale price which a person familiar with the deal confirmed for the first time is roughly half of the $250 million that former owner Gannett Co. paid for The Advertiser in 1992. But it is well above the steep discounts that newspapers on the Mainland have been selling for in recent years.

"That is a lot of money given that the value of newspapers have gone down considerably and the outlook for the newspaper business has been generally bleak," said Gerald Kato, University of Hawai'i-Mānoa journalism professor. "This reflects the value of having a monopoly in Honolulu."

The Advertiser and the Star-Bulletin which have competed head-on through two world wars, the Great Depression and the advent of statehood in Hawai'i will become the Star-Advertiser and will operate out of the Star-Bulletin's offices at Restaurant Row.

The deal will result in the loss of more than 400 jobs, making it one of the largest mass layoffs in Hawai'i in recent years. The Star-Advertiser hired 265 employees from The Advertiser and kept 209 from the Star-Bulletin.

The Advertiser's newsroom was among the hardest hit. Only 28 of The Advertiser 120 editorial staffers will be retained by the Star-Advertiser.

Details of The Advertiser's sales price have been kept confidential since Black announced on Feb. 25 that he was purchasing the newspaper, its website, its nondaily publications and the printing complex it built for $82 million in Kapolei. The $125 million purchase price includes debt that Black is assuming on the printing press.

Star-Bulletin and Gannett executives declined comment last week when asked about the price, citing a confidentiality agreement.

But Gannett has previously described the deal as favorable.

"The terms of this deal are obviously confidential, but we view the entire package as very attractive to us," Gannett President and Chief Operating Officer Gracia Martore said in remarks to Wall Street analysts in March.

The person familiar with the deal, who did not want to be further identified due to the confidentiality agreement, said the transaction includes a $40 million investment by Black's partner, Fairfax Financial Holdings Ltd. of Toronto.

Gannett the nation's largest newspaper operator and publisher of USA Today also is providing Black with more than $40 million in the form of financing for The Advertiser printing complex.

The exact amount invested by Black was not available, but the source said that Black's stake in the deal is the largest.

The changeover to the Star-Advertiser comes as many of the transition issues regarding terminated Advertiser staffers such as severance remain unresolved.

None of the Advertiser staffers who are losing their jobs have received severance payments. The newspaper's union contracts require that a minimum of five weeks of salary be paid to laid-off workers. Both Gannett and Black's Oahu Publications Inc. have held up the payments until a grievance filed by the unions is resolved.

For many Advertiser staffers, Black's takeover of The Advertiser was stunning given that the Star-Bulletin was the much smaller paper and was losing millions of dollars each year.

With a paid circulation of about 37,000, the Star-Bulletin's readership is about a third of The Advertiser's daily circulation of about 115,000. The Star-Bulletin was losing about $10 million a year, according to Black, while The Advertiser was profitable at the time of the sale, though just barely.

Longtime Advertiser sports columnist Ferd Lewis called the experience of the past several months "surreal."

"It's been extremely tough ... just hanging in limbo and knowing that the days of coming to an office that you worked at for 36 years are coming to an end," Lewis said.

Ian Rutka, an Advertiser advertising account executive, used a sports analogy to describe Black's takeover.

"Basically, it's like the Los Angeles Clippers bought the Los Angeles Lakers and L.A. became a one-team city. Only they're keeping the Clippers players and not the Lakers players," Rutka said.

For Black, the launch of the Star-Advertiser culminated a yearlong campaign to acquire the state's largest news organization.

Star-Bulletin Publisher Dennis Francis said that Black was the one who approached Gannett with the buyout plan.

According to the person familiar with the deal, Gannett initially played a "cat and mouse" game as it engaged in buyout talks while hoping that the smaller Star-Bulletin would fold, giving Gannett a monopoly.

But Gannett became more receptive as the downturn in the national economy deepened and newspaper advertising revenue took a dive. Newspapers across the nation were closing or being put up for sale.

In February 2009, the 149-year-old Rocky Mountain News closed, resulting in the loss of at least 230 jobs. The following month, the Seattle Post-Intelligencer shut down its print edition.

Gannett, meanwhile, was watching its share price fall off a cliff. By March 2009, the company's shares had traded as low as $2 a share, which was down from the year before when the stock was in the $30 range.

About the same time The Advertiser sale was being conducted, the Dayton Beach News-Journal in Florida sold for about $20 million, or a fraction of the $300 million that the newspaper was valued at in 2006.

Francis believes Gannett eventually decided to sell after it became convinced Black wasn't going to give in and that both newspapers would continue to struggle.

He added that The Advertiser no longer fit into Gannett's long-term strategy.

In recent years, Gannett had adopted a plan of owning clusters of newspapers in nearby cities that were able to print at a single plant. The move saved millions of dollars in printing and distribution costs, said Francis, a former Gannett and Advertiser executive.

Hawai'i's geographic isolation made it impossible to pursue that strategy with The Advertiser.

That point was stressed by Martore in her remarks before Wall Street analysts in March.

"Basically, it's not a property that we could have clustered easily to achieve significant efficiencies," Martore said. "That sale fits very well into our overall strategy."

Black, meanwhile, had little choice but to keep the Star-Bulletin going after pouring so much money into the venture, Francis said.

"Once you get to a get to a certain level, there was a point of no return," Francis said.

"If you walk away when the chips are down, you walk away a loser, but if you stay in the game a little longer, you can wait to see if things turn."

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