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Will the Capital Times buy out Lee Enterprises?
Those in the know aren't talking; those who aren't, are
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Former Mayor Paul Soglin, on his blog WaxingAmerica.com, makes a modest proposal for what remains of Madison's daily newspaper dynasty: "Lee [should] sell its interest in Capital Newspapers Inc. to The Capital Times, which will then resume publication as Madison's morning and Sunday newspaper."

It's an intriguing possibility, with a complicated back-story.

In 1948, Madison's two dailies jointly created Madison Newspapers Inc., which in recent years has called itself Capital Newspapers. The company owns the Cap Times and Wisconsin State Journal, as well as a number of smaller regional papers.

Because it shares equally in the operation's overall profits, the Capital Times Co. has done swimmingly well through the years, even as the circulation of the Cap Times paper plunged; last April, it ceased daily print publication.

The Iowa-based Lee, which owns 49 daily papers and more than 300 weeklies and specialty publications, has historically been seen as the stronger partner. But the company is now is dire straits, at risk of defaulting on the $1.4 billion it borrowed to buy the Pulitzer chain in 2005.

Lee's stock has dropped from $48 per share in 2004 to about 40 cents per share today, so low it could be booted from the New York Stock Exchange. The company last week reported an operating loss of $880 million in fiscal 2008, compared to a profit of nearly $81 million the prior year.

This sharp decline is due mainly to an accounting adjustment - the company's decision to write down the value of its Pulitzer acquisition. But, no mistake, the report's news was bad. Lee's debt-to-equity ratio stands at nearly 13 to 1, well above the "oh shit" threshold. And the auditor raised "substantial doubt about [Lee's] ability to continue as a going concern."

Thus Soglin thinks conditions are ripe for the Cap Times Co. to buy out Lee's share of Capital Newspapers. This, he says, would ensure the future viability of both.

There are problems with Soglin's scenario, especially his suggestion that it would let the Cap Times resume daily and Sunday publication. Though ownership could change, the State Journal brand still dominates the market and would likely remain the primary print product.

Soglin's post stirred into motion the great blogger beast David Blaska, who, claiming the mantle of reporter, affirmed his belief in speculation that the Cap Times Co. "is sitting on $130 million." This at a time when Lee's total stock value is less than $20 million.

How valid are such musings? Watchdog tried to find out. But Capital Times publisher Clayton Frink refuses to discuss his paper with Isthmus, and the company's patriarch, the winsome philanthropist Jack Lussier, hung up on a polite inquiry after offering this unenlightening explanation for his reticence: "I've got my reasons."

Capital Times editor Paul Fanlund, asked about the buyout possibility, says this: "We're aware that rumor is out there, but I am really not in a position to comment."

Not to be outmuzzled, Lee spokesman Dan Hayes ignored a phone message.

But Diogenes' lantern did cast its pale glow on one industry expert, former Lee exec David Stoeffler, now a Wisconsin-based newspaper consultant.

Is Lee in trouble?

"Clearly, newspaper companies like Lee are under a lot of stress because of debt and the status of the industry," says Stoeffler. "Obviously, the company, like many others, is getting pressure from all sides."

But, Stoeffler adds, "it's still a company that has tremendous assets and a large amount of cash flow." And it's working with creditors to restructure its debt. Indeed, he considers it "irrational" for Lee's stock price to be as low as it is.

So might someone come along and buy out Lee entirely, as Blaska suggests? Stoeffler doubts it: "Do you see anybody buying newspaper companies right now?"

What about the Cap Times Co. buying out Lee's share of Capital Newspapers?

Stoeffer thinks this is mostly idle speculation, perhaps "wishful thinking" on some people's part. "A deal takes both an interested buyer and a willing seller," he notes, "and my guess is that neither party is all that interested."

Evjue Foundation impact

Technically, the money that Cap Times founder Bill Evjue bequeathed to a charitable trust in his name does not belong to the people who run it, but to its intended beneficiaries: the entire Madison community. That message seems lost on the people who run it.

As with the buyout story, Isthmus ran into a wall of silence while trying to learn how the meltdown of the U.S. economy will affect the Evjue Foundation, which annually dispenses about $2 million to the UW and area nonprofits.

Jack Lussier, as noted, hung up the phone. The foundation's executive assistant, Arlene Hornung, did not return calls. Kathleen Woit, who heads the Madison Community Foundation and serves as an Evjue trustee, declined comment.

"There's nothing about it that's at all controversial," said Woit. "But it's up to them [Lussier, Hornung, Frink] to speak to it. It's not up to me."

Attorney Howard Sweet, who represents the Evjue Charitable Trust that feeds the foundation, did provide some useful perspective: "The Evjue Charitable Trust and the charitable foundation are not immune from what's happening everywhere in terms of investments, and I would expect distributions would be affected by it."

Can we quote you on that? Sweet defers to Lussier and Frink but doesn't say no. Bless his heart.

For the fiscal year ending last Feb. 29, the Evjue Foundation reportedly earned $3.3 million, including $1.9 million from the charitable trust and $1.25 million from other investments. It gave grants totaling $2.1 million to area causes.

The largest share of the payments from the charitable trust comes from dividends from Capital Times Co. stock, which have increased year after year. (This even though the stock's reported market value has fallen from $1,340 per share in 2004 to $850 in 2007.)

Dividends on Cap Times Co. stock directly reflect the overall profitability of Capital Newspapers. In 2007, the charitable trust's nearly 21,000 shares of this stock each earned $61.25, an all-time high, for a total of $1.28 million. For 2008, that amount will likely be lower, as well as revenue from other investments.

How much lower, and how will this affect payouts? Who knows? Oh, wait, the trustees do. They're just not saying.

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