Cardinals Minority Owner in Serious Financial Trouble

The St. Louis Post-Dispatch?

Yes, at least via their family relationships.

The family tree

Founded by Joseph Pulitzer in 1878, the Post-Dispatch was still owned by the media company Pulitzer Inc. until 2005. At that time, Lee Enterprises, Inc. of Davenport, IA purchased Pulitzer Inc. and made it a wholly-owned subsidiary of Lee.

A footnote in that transaction was that a small minority stake of the St. Louis Cardinals also passed from Pulitzer to Lee.

Chairman Michael Pulitzer had tried to join the William DeWitt Jr. ownership group when the Cardinals were purchased from Anheuser-Busch in 1996. Though it was a bit of a surprise at the time, there was strong public sentiment that the business community was demonstrating their commitment to help keep the Cardinals in St. Louis.

Yet because Pulitzer already owned a stake in the Arizona Diamondbacks, MLB would not allow him to also acquire a share of the Cardinals. MLB’s rules preclude ownership participation in more than one team.

Five years later, in 2001, both Pulitzer Inc. and Michael Pulitzer himself successfully acquired what was characterized at the time as a “nearly four percent stake” in the Cardinals. Terms of the deal were not disclosed, nor was it clear what portion is under company ownership and what Pulitzer holds personally.

The annual Cardinals media guide continues to list both Pulitzer Inc and Michael Pulitzer among the 15 “investors” in the club. The other 13 are all individuals, led by DeWitt and his older sister.

In their annual report on the Business of Baseball, released in April, Forbes estimated the value of the Cardinals at $484 million. The entire four percent stake would be worth just under $20 million, or peanuts considering the magnitude of Lee’s current problems.

Current state cloudy

Somber news was reported on Monday in the Post-Dispatch and nationwide. Lee’s independent auditor, KPMG LLP, sounded an ominous warning that heightened fears that the company may be on the brink of imminent financial failure.

KPMG plans to file a “going concern” statement in conjunction with Lee filing its annual report by the end of the year. Apparently, the only way to avert that would be for Lee to refinance a $306 million debt by the end of this month. If that fails, a series of default loan dominoes will reportedly fall, which would bring down the company.

The St. Louis Business Journal added for the same reasons, KPMG will also modify its auditors’ reports on the separate financial statements of Pulitzer Inc. and the Post-Dispatch.

As expected, Lee officials’ public comments express optimism the problems will be resolved.

Independent industry watchers disagree. 24/7 Wall St. ranks Lee number seven in their 15 companies on “Bankruptcy Watch” and that was when company stock was almost $6 per share.

Their assessment: “The company wrote off $841 million in assets last quarter. Advertising revenue dropped almost 6% year-over-year, and that is almost certainly accelerating. Lee is sitting on almost $1.3 billion in debt and, before the end of the year, it probably will not have the operating income to cover debt service.”

In October, Lee had suspended dividend payments to stockholders and established a new credit agreement with lenders to try to stave off selling assets or declaring bankruptcy to survive. Employees were informed that company matches to their 401(K)s were reduced.

Shares in Lee Enterprises have plummeted from a 18-month high of $24.97 to $0.34 at market opening on Thursday. That’s right, just 34 cents per share.

In other words, it would cost you more to buy a copy of the Post-Dispatch from a newsstand than to acquire two shares of Lee stock! One might argue it is barely worth the paper it is printed on.

Lee is hardly alone, as many newspaper chains nationwide are feeling the severe effects of the credit crunch aggravated by steady declines in circulation and advertising sales.

Many financial observers attribute much of Lee’s current problems to being overextended in debt tied to acquisitions. Lee reportedly borrowed roughly $1.5 billion to acquire Pulitzer Inc. three years ago and prior to that added Howard Publications in 2002.

Bottom line, selling their small stake in the Cardinals, whatever it is exactly, wouldn’t even slow the flow of red ink from Lee’s gaping wound.

Impact is broad

While the Post-Dispatch may have been Pulitzer’s flagship, Lee Enterprises publishes 49 daily newspapers and more than 300 weekly newspapers and specialty publications virtually nationwide.

At the time of the 2005 acquisition, Lee Enterprises employed over ten thousand people, of which 4,000 came over from Pulitzer.

Despite the obstacles, perhaps satisfactory arrangements can be made to keep the papers running without interruption. Selfishly and narrow-mindedly, I believe the quantity and quality of the Post-Dispatch’s Cardinals coverage has grown substantially in recent years and would hate to see that compromised.

Most importantly, here’s hoping the thousands of Post-Dispatch employees can keep their jobs as their parent struggles to remain solvent.