New York Times (NYT) announced that it is selling its TV station group. The group contains nine stations that management says will produce $43 million in earnings before interest, taxes, depreciation and amortization (EBITDA) in 2006. Recent transactions in TV have been around 13x EBITDA, potentially creating proceeds of $560 million. In the past, management has noted these stations have a low cost basis, so after-tax proceeds won’t likely be that high.
The station group represents around 5% of NYT’s total business, so this is a marginal deal. Analysts will like the fact that they are eliminating a slow growing business facing secular challenges. The digital businesses immediately grow as a percentage of the overall pie. Analysts will also be pleased that NYT management can be more focused on its most important operations.
I am pleased to see the divestiture announcement, but I don’t think it represents a signal to get long NYT. The challenges in newspapers are too high, and signs of a cyclical pickup in advertising remain nonexistent.