Monday, August 11, 2008

MediaNews memo explains Post sale

MediaNews recently sent out the following memo to employees, explaining their sale of the Connecticut Post, and their plans for the future.

But for all their talk of investing in the future and capitalizing on opportunities (and there's plenty),

we are adding major resources in the sales and marketing areas...

We have reset our cost thermostats and invested in our advertising departments to benefit from that recovery...

...there's no mention of the product itself. News, copy, content - no matter what you call it, the stuff that goes in between the ads is what drives your traffic, and any business model that fails to recognize that is going to have a hard time making lasting gains.

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TO: MediaNews Group Employees

FROM: Jody Lodovic and Dean Singleton

RE: Company Update

We write to bring you up to date on progress we have made in positioning your company for a successful future. While there are daily stories painting doubt on the newspaper industry's future, MediaNews Group's leadership is not among those who share these doubts. We believe the future is bright, but the path to the future will not be an easy one. We, along with the industry, will face many obstacles along the way. We pledge to navigate these obstacles, and today have removed some of ours related to our debt.

In a memo to you a month ago, we alluded to a forthcoming transaction with our partners at Hearst. Last week we announced the sale of the Connecticut Post to Hearst. The purpose of this update is to explain this transaction and what it does for the future of MediaNews Group.

As many of you have read, newspaper transactions have slowed almost to a halt this year and transaction multiples have compressed. Is that because the newspaper business is dying? Absolutely not! The lack of buyers and today's lower valuations are driven by the inability of traditional buyers to raise capital in a distressed financial market. The recent Newsday and the Connecticut Post transactions (at healthy multiples, albeit lower than historical multiples) demonstrate that newspapers are still valuable holdings.

So, why did MediaNews sell the Connecticut Post? While we were not looking to sell the Connecticut Post, we took advantage of an opportunity to accomplish several important objectives. First, proceeds from the sale were used to repay almost 25% of our outstanding bank debt. Secondly, the transaction provided a unique opportunity to approach our bank lenders with a "win-win" proposition. In exchange for the large repayment, our banks agreed to relax certain key aspects of our credit agreement to provide more room to navigate over the coming years.

In sum, the sale, coupled with the changes to our credit agreement, provide us the runway we need to execute our strategic plans, position the Company to be opportunistic, and continue to lead the industry into the future.

Make no mistake; we did not press the "Easy Button." There is still hard work to do. We must be more vigilant than ever given the economic challenges we (and all advertising based media) face. Despite all of the negative press surrounding newspapers (ironically emanating mostly from our own industry), all advertising based media is under similar pressure.

This represents an opportunity to improve our competitive position and grow share in our local markets. That is precisely why we are adding major resources in the sales and marketing areas. If we embrace the challenge, take advantage of the investments made, and work together in collaborative fashion, we will control our future.

And let us address the future of our industry. Many argue that our future is grim. We do not agree. Some of our advertising revenue is migrating to the web, to be sure. But we are positioning our own web businesses to be the leading destination on the web in our local markets. The Yahoo partnership we forged is just one example of our plans for the future. And the MediaNews Group and Hearst-owned Kaango, we believe, will build our self-service web business and offer web-to-print solutions to help us rebuild our local dominance in key classified categories.

But the transition to the web, while offering both challenges and opportunity to our industry, is not today's biggest problem. The fact is, we're in an old-fashioned recession, and those of us who are a bit older have been there before. Real estate, automotive and employment advertising have been decimated by a slowing economy and a collapsed credit market.

MediaNews, which operates in some of the most dynamic markets in the country, has been hurt more than most because we had robust bases to fall from. But in a recovery, we are poised to lead the industry in growth because of the quality of the markets we serve. While we don't know when that recovery will begin, we know it will come. We have reset our cost thermostats and invested in our advertising departments to benefit from that recovery, whenever it begins.

The decision to sell the Connecticut Post was not an easy one. It is a great newspaper run by a fine group of people, and we will miss them. But MediaNews is now better positioned to weather the storm that surrounds our industry. As they say, "Let's grab the bull by the horns" and take MediaNews Group into the future.

As always, we thank you for your efforts during these challenging times. We also recognize and appreciate your loyalties and passion for a great industry, while confronting significant pain and uncertainty. We are confident that the future will be brighter.

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