Newspaper options for monetization in a difficult market environment

Fourth in a series

In the first three articles in this series, we evaluated various aspects of the valuation, restructure and disposition of core and excess real estate assets within the newspaper/ publishing industry. In this final article, we consider another core, but related, asset that can present a significant value opportunity for the owners of a newspaper company: printing presses and related machinery and equipment, or M&E.

In evaluating the current market and disposition alternatives for such assets, I interviewed two industry experts from Hilco: William Dunn, an appraiser with Hilco Valuation Services and John Magnuson, executive vice president at Hilco Industrial, a seller/market maker for presses and all manner of M&E. These experts agreed that the market for such assets is currently “dismal at best” and has been for nearly ten years. As the industry consolidated, competitors were sidelined and capital for equipment replacement was deployed to other corners of newspapers’ balance sheets.

Dunn is an industry veteran who has been valuing machinery assets in and outside of the publishing realm for better than 25 years. He does the majority of his valuation work for asset-based lenders wanting to know the value of the collateral on which they make loans. In Bill’s estimation, only presses manufactured in or after 1997 hold any value in today’s marketplace. Presses produced or put into service prior to 1997 are generally considered to be scrap by the bulk of the marketplace.

Why do these six-, seven- and even eight figure assets degrade so markedly in value over such a short period of time—and far faster than their operational useful life? Some of the underlying reasons include:

• A persistent drop in circulation nationwide that has sapped demand for both new and used presses;

• A move toward consolidation in printing operations, where regional publishers print not only their own papers, but those of their competitors. These idle plants further sap demand;

• Underutilization. Dunn has appraised several facilities where just one of several bays or press lines is in operation while the others remain unused or unneeded;

• Installation costs that are extremely high—in most cases more than the equipment itself— and that are not recouped on sale.Disassembling and moving costs for an old press can be prohibitive.

Consequently, supply is persistently high. Besides presses, there is a surfeit of related machinery, such as bindery equipment. The bottom line, according to Dunn, is that the softness in the marketplace is expected to continue for the foreseeable future since both supply and demand dynamics argue for depressed pricing and a glut of available product.

With this discouraging reality, can newspaper owners recoup any of their substantial investments in such assets? The answer, to a limited degree, is yes. Specifically, there are printing press supporting systems that, while older than 18 or 20 years, can yield some value. Examples include ink fountain control systems and press registration control systems. However, these ancillary systems will yield only pennies to less than 50 cents on the dollar relative to the original investment.

According to both Dunn and Magnuson, the likely buyers of unneeded M&E are often overseas. A key factor in a successful equipment liquidation is engaging a machinery and equipment broker to run the marketing process.

Press sales are possible in this day and age. However, more likely than not the value is equivalent to scrap or slightly more. In any case a process run by an experienced company should be undertaken to evaluate the value and optimize monetization of such assets.

David Kirshenbaum is senior vice president and head of the Corporate Services practice at Hilco Real Estate LLC (www. hilcorealestate.com) located in Northbrook, Illinois. The company is a unit of Hilco Global, a provider of a wide variety of valuation, monetization and advisory services for the printing, publishing and other industries. Among the services Hilco offers are lease restructuring, real estate sales, property tax advisory, equipment liquidations and asset appraisals

 The Chicago Sun-Times: A case study in liquidating production equipment

The Chicago Sun-Times is one case study which highlights the market conditions being experienced now and how asset value can be recouped. The owners of this major city metropolitan daily decided to print through its main rival, the Chicago Tribune, in lieu of printing for their own account. A rundown of the process and results follows.

After Sun-Times Media (STM) made the strategic decision to outsource printing of the Chicago Sun-Times, Hilco Industrial conducted a multi-phase sale of all STM machinery and equipment.

The first phase was a liquidation sale of the main production assets, featuring a 1999 Goss Newsliner web press with a total of 24 towers and a 1999 Goss Universal 70 web press with 12 total towers. There was also a large quantity of pre and post-press equipment. For four months this equipment was marketed globally through a number of channels. This effort resulted in inquiries from 13 countries across six continents and several significant sales of pre- and post-press equipment—with a majority of the sales completed in the US.

Due to age, format, and specific technical complications, the presses drew serious interest only from overseas entities. Eventually two groups from South America, Peru and Chile specifically, emerged as buyers for the presses. After the presses were marketed for more than six months, the group from Chile bought both for what amounted to scrap value. The final sales price was significantly affected by the cost of removal, storage, transportation, and reinstallation. In addition, the buyer needed to make a sizable investment in control upgrades. And, most importantly, they needed to construct a new facility to accommodate the massive presses.

The generic plant and production support equipment as well as any remaining pre and post-press machinery was successfully sold via an internationally-broadcast live auction sale. In total, the sales process was completed in eight months, and Sun-Times Media sold and transferred title to the property a few months later.

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Source: The Inlander