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Star Tribune gains a majority owner

  • Article by: DAVID PHELPS
  • Star Tribune
  • August 3, 2012 - 8:27 AM

For the first time since emerging from bankruptcy nearly three years ago, the parent company of the Star Tribune will have a majority owner.

Wayzata Investment Partners, the largest minority shareholder of the media company, received approval from other shareholders to increase its ownership stake to 58.2 percent from 49.8 percent in a $4.1 million deal.

Publisher Mike Klingensmith said Thursday the expanded ownership position of private equity firm is "a positive sign and an endorsement of our strategy."

"Wayzata has advised us that they see no material changes in their approach to the business," Klingensmith said.

Under terms of the deal, Wayzata Investment Partners will purchase 128,951 shares from Credit Suisse, an international financial services group. The transaction, at $32 per share, is expected to close next week.

Credit Suisse still retains a small stake in the company and is among around 40 entities that own company stock, Klingensmith said.

Other shareholders had the opportunity to force a companywide tender offer, but not enough objected by the July 30 deadline. Principals for Wayzata Investment Partners, including managing partner Patrick Halloran, declined to comment Thursday.

J. Keith Moyer, former Star Tribune publisher who now teaches at the University of Minnesota School of Mass Communication, said the deal will likely be good for the Star Tribune because the majority ownership is based in Minneapolis.

"Unlike Credit Suisse and other nonlocal investors, this is Wayzata's local newspaper and the market's leading media outlet," Moyer said. "They seem like decent folks, and I'm inclined to think they wouldn't make huge cuts or attempt to bigfoot the news and editorial policy."

In an Aug. 1 letter to shareholders, Star Tribune board Chairman Michael Sweeney said: "Because the number of objections received did not reach the number required for a supermajority objection, no tender offer will occur and the proposed change-of-control sale to the Wayzata entities can proceed."

The number of objecting shares needed to force a tender offer was 424,677; the number received was 236,303.

At $32 a share, a 100 percent takeover of Star Tribune Media Holdings Co. would put the equity value of the company at about $49 million. Klingensmith said the company's "enterprise value" -- including about $70 million in debt -- would be about $120 million.

Wayzata typically invests in distressed companies and sells them for a profit. The firm currently has $7 billion in assets under management.

The Star Tribune maintains the seventh-largest Sunday newspaper circulation in the United States. Media analyst Ken Doctor said Wayzata's majority ownership "is another step in the process to the eventual sale of the Star Tribune. It's just much cleaner to do that as majority owner."

Doctor, who writes a blog called Newsonomics, said Wayzata's increased stake in the newspaper is a vote of confidence for Klingensmith and his management team. "I wouldn't expect much change," Doctor said.

But other analysts are more skeptical.

"The history of private equity majority owners of newspapers has not been encouraging, since they tend to slash costs -- news hole, news staff, etc. -- to boost profitability preparatory to flipping the property," veteran newspaper observer John Morton said. "Whether Wayzata is that kind of investor, I have no idea."

In its turnaround since emerging from bankruptcy, the Star Tribune has seen modest growth in both Sunday and daily circulation, greater circulation revenue, new revenue from digital subscriptions and other digital products, and a slower decline in print advertising sales. The company also has reduced its debt from $100 million to $70 million.

One potentially lucrative component of the Star Tribune is its ownership of downtown property that is near the new football stadium for the Minnesota Vikings. The company has hired a broker to handle any transaction but has received no offers so far. Proceeds from any sale would be used to pay down the Star Tribune's debt, company officials have said.

A little more than two years ago, Star Tribune shareholders were courted with an offer from an investment fund led by Minnesota Timberwolves owner and Mankato businessman Glen Taylor and Minneapolis publisher Vance Opperman. Sweeney said in a letter to shareholders last month that the company remains in touch with their investment vehicle, the Atticus Fund.

Taylor and Opperman could not be reached for comment Thursday to gauge their current interest.

David Phelps • 612-673-7269

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