Hurdles face IPO from newspaper publisher

By Yung Kim

NEW YORK, Oct 20 (Reuters) - Newspaper publisher GateHouse Media Inc. plans to go public Tuesday in a deal that defies industry trends and has some analysts scratching their heads.

GateHouse plans to sell shares in an initial public offering that would give it a market value of almost $587 million and make it the first newspaper to float its shares since 2003.

National newspaper chains including Tribune Co. (TRB.N: Quote, Profile, Research), publisher of the Los Angeles Times and Chicago Tribune, and New York Times Co. (NYT.N: Quote, Profile, Research) reported disappointing third quarter results this week.

Persistent advertising woes resulting from a slow housing market, troubles in the auto industry and other economic factors have plagued the industry, which already faces pressure from falling circulation as readers turn to the Internet.

"It is not a good time for newspaper stocks," said newspaper industry analyst John Morton. "And the prospects for getting better this year and well into next year are not good."

Revenue for McClatchy Co. (MNI.N: Quote, Profile, Research), Gannett Co. Inc. (GCI.N: Quote, Profile, Research) and Belo Corp. (BLC.N: Quote, Profile, Research) rose in the third quarter, but missed expectations.

Milwaukee Journal-Sentinel publisher Journal Communications Inc. (JRN.N: Quote, Profile, Research), the last IPO from a newspaper publisher, floated shares in 2003 and closed Friday down about 22 percent from its offering price, according to data tracker Dealogic.

SMALLER NOT BETTER

Gatehouse Media says its role as a publisher of smaller, local newspapers allows it to be the dominant news provider in some locations, according to documents filed by the company with the U.S. Securities and Exchange Commission.

Fairport, New York-based GateHouse Media owns 423 community publications, mostly in smaller U.S. cities and towns and more than 230 related Web sites.

The company's papers include the Marion Daily Republican in Illinois, the Telluride Daily Planet in Colorado and the Patriot Ledger in Quincy, Massachusetts, according to its Web site.

Local advertisers prize reader loyalty. But focusing on local coverage provides only a modicum of shelter from the market forces affecting the larger chains, Morton said.

DEBT PAYMENTS

Gatehouse Media's $738 million in long-term debt is a big negative for the company and the IPO, analysts said.

But much of the proceeds from the estimated $195 million, 11.5 million share float will go towards paying down that debt.

"They are spending more money on debt expense than they make in operating income," said Francis Gaskins, president of IPO Desktop, an independent research firm based in Los Angeles. "I just don't see how it computes."

The company, majority owned by private-equity fund Fortress Investment Group LLC, paid more than $21 million in debt payments, but had only $13.6 million in operating income, this year, according to pro forma adjusted figures in the company's SEC filing

"The whole industry is flat to declining and GateHouse looks like it is really leveraged," Gaskins said. "I don't think its going to work."

GateHouse officials could not be reached for comment Friday.

DOUGLAS EMMETT IN FOCUS

Douglas Emmett Inc. is poised to be the fifth IPO of the year to break the $1 billion barrier with an IPO scheduled for Monday, according to data tracker Dealogic.

The Real Estate Investment Trust or REIT boasts an impressive portfolio of office and apartment buildings around Los Angeles, said Ben Holmes, publisher of Morningnotes.com, an independent research firm based in Boulder, Colorado.

"Most of the buildings they own could not be built today because of zoning laws," Holmes said. "My guess is that it will be well received."

The company plans to float 55 million shares with a forecast range of $19 to $21. Priced at the midpoint, the company would raise $1.1 billion.