$85 million deal to combine U-T San Diego, Los Angeles Times

U-T San Diego and the Los Angeles Times announce May 7, 2015 that the U-T will be bought by Tribune Publishing, owner of the LA Times. U-T Editor and President Jeff Light (far right) and Times Publisher/CEO Austin Beutner (left) jointly announce the sale to U-T employees in the paper's Mission Valley offices.
(David Poller)

The owner of the Los Angeles Times has agreed to buy U-T San Diego, combining two of Southern California’s oldest and most recognizable media companies, executives announced Thursday, May 7.

Tribune Publishing, which owns nine other daily newspapers including the Chicago Tribune and Baltimore Sun, said it will pay $85 million for the U-T operation, a sum that doesn’t include its Mission Valley headquarters.

With potential to reduce costs and combine resources, the deal is designed to help the two media operations compete for readers and advertisers against an onslaught of firms, ranging from Facebook to Politico to Yelp, that focus exclusively on reaching people through the Internet and mobile devices.

Austin Beutner, the Times publisher and chief executive, will hold those posts at both companies after the deal closes in coming weeks. Employing about 500 journalists in the Times newsroom and 175 at the U-T, the combined companies would offer subject-matter expertise that no competitor can match, he said.

“That’s our comparative advantage; ... we have more voices and more content, and that’s how we win in a digital world,” Beutner said in an interview before the announcement. “We compete by having the best content.”

To that end, Beutner said a regional operating parent, called California News Group, would keep the Times and U-T as distinct brands and separate newsrooms. Yet he said they would share some stories, photos, video and other content, when doing so can best serve readers.

Most people won’t notice any changes, aside from improved coverage, Beutner said.

One change would be hard to miss, however: Executives will consider returning to the name The San Diego Union-Tribune, the brand since 1992 (when The San Diego Union and The San Diego Tribune merged) that was compressed to San Diego U-T in 2010 by former owner Platinum Equity, and to U-T San Diego by current owner “Papa” Doug Manchester.

Manchester would retain ownership of the company’s Mission Valley property, where he is seeking city permission to build 200 luxury apartments. The U-T would operate under a short-term lease.

As for layoffs, consolidated printing operations or other cost-cutting moves, Beutner said it’s too early to know, although he said he didn’t want to mislead anybody into assuming the number of employees would remain unchanged. The deal is scheduled to close before June 30.

Industry experts have expected consolidation in Southern California for years. With few exceptions, advertisers nationwide have shifted dollars from print to online competitors much faster than newspapers have increased their own digital revenues, leading to overall declines.

For perspective, after peaking at $49.44 billion in 2005, total U.S. newspaper ad revenue fell by 55 percent to $22.31 billion by 2012, according to the Newspaper Association of America.

In response, executives have boosted productivity, cut costs, closed properties and pursued combinations. Competitive pressure has been particularly acute for those serving large cities.

Beutner plans to boost revenue by expanding information tailored to specific “communities of interest.” Historically, major metro newspapers focused on reaching the widest possible audience.

As an example of the new strategy, he cited the Times launch in late 2014 of Essential California, a newsletter available by email and online each morning that allows readers to browse brief summaries of statewide news or click links to longer articles, videos or interactive story formats. The newsletter has gained about 75,000 subscribers.

Such packaging uses the expertise of Times journalists to reach specific groups of readers that are valued by advertisers, who pay higher rates for such access. A prominent practitioner of the approach is Politico, a 2007 startup that has thrived commercially by focusing on national politics and policy based in Washington, D.C.

San Diego and Los Angeles are brimming with similar opportunities, said U-T President and Editor Jeff Light, who will remain with the company.

“Look at what we now have at the fingertips of a single regional media company: a worldwide hub of life science and biotech innovation; perhaps the most significant concentration of military forces in the world; the world’s busiest land border; two of the top tourism destinations in the nation; the center of the film industry,” Light said. “The business opportunity, and the journalistic opportunity, is very big.”

The Times, winner of 42 Pulitzer Prizes, has been published in Los Angeles since 1881. Its print and digital editions reach an estimated 4 million readers each Sunday, while the U-T reaches about 1 million, Beutner said.

If the sale to Tribune Publishing, a public company, is completed as scheduled, it will close 146 years of private ownership for the U-T, winner of four Pulitzer Prizes and San Diego’s oldest company in continuous operation.

“We may lose the Chargers, and now we’ve lost the newspaper. Oh my gosh!...” will be the reaction of many people in San Diego, said UCSD political science professor Steve Erie.

But such attitudes could fade fast if California News Group is able to deliver superior local news.

“I think this is really good news, as long as they make sure this is the San Diego paper and not the San Diego edition of the L.A. Times,” Erie said. “Because we don’t want to be L.A., and I think I speak for many.”

Former San Diego Mayor Jerry Sanders, who now helms the San Diego Regional Chamber of Commerce, bemoaned the loss of the paper’s longstanding hometown ownership.

“It’ll be hard not having someone not understanding the history of San Diego as the new publisher,” Sanders said. “Probably everyone is apprehensive. The chamber has had a great relationship with the newspaper, and we hope that continues with the new publisher.”

The sale is a good move if it means preserving a daily newspaper in San Diego, said longtime County Supervisor Ron Roberts.

“The world is changing, and it’s having an enormous impact on newspapers. And to have a group that knows the newspaper business and that will provide good, quality reporting in San Diego, that’s first and foremost the important thing happening here,” said Roberts. “You’re still going to have to have people here doing the real work, and I’m confident that is going to happen.”

Malin Burnham, the wealthy developer who led a group that worked over the last year to buy the U-T using a nonprofit ownership structure to support local charities, was a bit let down by the news.

“I’m personally disappointed that Papa Doug didn’t sell it to us, but he’s the owner and that’s his privilege, so I’m not complaining,” Burnham said.

San Diego Mayor Kevin Faulconer sounded an optimistic note: “The U-T has an incredible track record of excellent journalists and quality reporting, and I’m looking forward to the next chapter.”

On the political front, the marriage of dominant media players in California’s two largest cities might be seen by some as an unusual pairing, to the extent it links communities that tilt in opposite ideological directions.

Manchester has been controversial in some quarters because of his conservative views and his activism on the editorial page – and for using front-page advertising “wraps” for editorials a few times during his ownership. The Times has been controversial in conservative quarters because of the liberal agenda of its editorial pages.

Beutner, a former private equity executive who served in the administrations of President Bill Clinton and Los Angeles Mayor Antonio Villaraigosa, promised a hands-off policy, even for the editorial page.

“I check my personal opinions at the door,” he said. “I see the front page each morning just like everybody else.”

In his parting note, Manchester said his motives as owner and publisher were pure, and that celebrating achievement and standing up for important causes meant the most to him.

“It has been important for me to speak out positively on a local, national and international level, particularly in denouncing Christian genocide and other oppression throughout the world,” he said. “As publisher, my motive always was to do what was right for our city and our country. I’m proud to have been associated with the U-T.”

Manchester, a successful real estate developer with several projects under way, appears poised for a respectable payday from the deal.

He reportedly paid $110 million in 2011 for the U-T (with Enlace, a Spanish-language edition), a net $5 million in 2012 for the North County Times (after selling its headquarters), and an undisclosed sum in 2013 for eight community newspapers.

Under the sale agreement, Manchester would receive $85 million, in the form of $73 million in cash and $12 million in Tribune Publishing common stock. He would keep real estate with an assessed value of $43.6 million. And Tribune would assume an undisclosed pension liability.

Light, the U-T president, declined to detail annual earnings, but he indicated the company has been profitable.

“The U-T has one of the industry’s better bottom lines, and then when you operate the two companies together you get some efficiencies.” he said.

Tribune Publishing reported Wednesday, May 6 that net income fell to $2.5 million in the first quarter from $11.8 million a year earlier, as revenues fell 4.9 percent to $369 million. But operating cash flow was $21 million and the company declared a cash dividend in March.

The company took on $350 million in debt as part of an August spinoff from Tribune Company, a deal that separated publishing assets from broadcasting.

Deals to combine news properties and gain efficiencies in Southern California have seemed inevitable in recent years, said Ken Doctor, a veteran media analyst.

Whether the California News Group is successful will depend in part on whether its parent company can shift enough customers to profitable digital products before falling print revenue inordinately pinches its finances, he said.

“Beutner is a smart publisher and he has a good long-term vision,” Doctor said. “But will he have the cash to be able to transform the company into a mainly digital company? That’s the big question.”

Lori Weisberg contributed to this report.

———

• A letter to our readers from Austin Beutner:

Dear readers,

I am pleased to announce that Tribune Publishing Co., owner of the Los Angeles Times, has agreed to acquire The San Diego Union-Tribune. At the close of the transaction, I will serve as publisher of the Union-Tribune, which will join the Los Angeles Times as the flagship publications of a newly formed California News Group.

Austin Beutner

For San Diego and for all of California this is an important day, a recommitment to the values of independent journalism. The Union-Tribune, which traces its history back 146 years, will continue its role in the San Diego community, reaching an audience of more than a million readers every Sunday.”

California is a state defined by its geography and its people. Mountain ranges and coastlines, waterways and fault lines have shaped its cities and created urban identities as unique as its personalities and landmarks.

San Diego, the birthplace of California, is a city of both “pleasure and innovation,” to borrow a line from its great local scribe, the late Neil Morgan.

We take pride in the accomplishments of baseball greats like Ted Williams and Tony Gwynn, literary lions like Theodor Geisel and L. Frank Baum, philanthropists like Joan Kroc and the Copley family and visionaries like Jonas Salk and Roger Revelle.

And we look to the next generation of talent emerging from San Diego’s universities, biotech and communication industries, from The Old Globe and Comic-Con, from the border and military bases — at all points where this rich metropolis engages with both the nation and the world.

With four Pulitzer Prizes among the Union-Tribune’s honors, we are mindful of its role in the community, and we will preserve the independence of the Union-Tribune’s newsroom and its award-winning writers, photographers and editors.

I am aware of the fierce devotion that readers of the Union-Tribune bring to their hometown newspaper, and the Union-Tribune will continue to be a destination for trusted journalism delivering essential news, analysis and commentary that engages all viewpoints. I also know that Los Angeles will benefit from a closer connection to its southern neighbor.

When Neil Morgan visited Jonas Salk’s laboratory in La Jolla more than 50 years ago, he asked the scientist why he had left New York. Salk looked to the sea and answered, “I see San Diego as an empty canvas on which to paint my dreams.” Many of those dreams have come true; many have yet to be realized.

The San Diego Union-Tribune will be there, continuing to engage and inform you.

Sincerely,

Austin Beutner

Publisher and CEO, California News Group

———

• Statement from “Papa” Doug Manchester:

It has been my great privilege to own The San Diego Union-Tribune, the oldest business in San Diego and a very special part of our community. As with every business I have undertaken, I have enjoyed providing opportunities for others, creating positive experiences, and being a cheerleader for the good of our community. It has been important for me to speak out positively on a local, national and international level, particularly in denouncing Christian genocide and other oppression throughout the world.

“Papa” Doug Manchester

As publisher, my motive always was to do what was right for our city and our country. I’m proud to have been associated with the U-T, and I’m proud to pass it now to new owners with a tradition of journalistic excellence and the resources that will ensure a successful future.

The U-T remains in good hands under Tribune Publishing with the leadership of Austin Beutner and Jeff Light.


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