Yikes! Editor & Publisher reports that McClatchy , which owns 49.5 percent of the Seattle Times company, has again written down the carrying value of


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Yikes! Editor & Publisher reports that McClatchy, which owns 49.5 percent of the Seattle Times company, has again written down the carrying value of its investment. As we reported in January, the McClatchy stake--inherited when the Sacramento-based media company bought the assets of the dissolved Knight-Ridder chain--was valued around $100 million in 2006. McClatchy accountants devalued that to $20 million in January, and now $10 million, according to SEC filings.

Does that mean the paper is only worth twice that much--$20 million? Not exactly. McClatchy benefits from a sub-market valuation, just like a homeowner hoping to keep his property taxes low. Even though the newspaper industry has taken a huge hit in recent years (thanks to the Web, Craigslist, declining ad sales, the economy in general, etc., etc.), if you could put the two parts of Seattle Times Co. together, the whole would surely be more valuable. Not $200 million, but also surely not $20 million.

Can anyone reintegrate the fractured paper? Frank Blethen is under huge pressure to sell his papers in Maine, which he unluckily bought at the top of the pre-Internet market with borrowed money. Those, too, have lost most of their value, and only bargain shoppers are said to be interested. Even if he could pay off his bankers back east, there's no guarantee he could scrape together the pennies to buy out McClatchy (which has stated it's willing to sell), even if he wanted to. (Times Co. is private, and doesn't have to disclose all its financials.)

And while Hearst, owner of the P-I, is also hurting in the same general media climate, it's a much larger and more diversified company. Under terms of the Joint Operating Agreement, it has first dibs on Blethen's share--if he were ever to sell. And it's impossible to believe that Hearst would ever sell to McClatchy (which wants money for assets), since Hearst wants the power of a Seattle monopoly.

The math here goes something like this: Seattle Times Co. minus Maine papers equals possibly unsustainable loss. Times plus cash from selling Yakima and Walla Walla papers to bottom-feeder David Black, if Blethen were willing to further consolidate his empire, equals slightly mitigating dollar infusion (but still likely a loss). Maine loss plus continued print advertising-sales slump (farewell, SUV ads) equals probably negative Times cash flow, meaning it can't afford to wait for the JOA to expire in 2016. Damaged credit rating from Maine paper debacle equals inability to borrow, and it doesn't have much more real estate (i.e. parking lots) to sell. (And Paul Allen and other developers in SLU are surely poised to buy.)

Times Co. minus further staff (via attrition, buyouts, layoffs) and discarded union agreements (watch out for a Teamsters strike, Frank) equals even smaller core asset. Which, plus McClatchy stake, equals easy acquisitions for Hearst. If the Blethen family opts to toss in the towel after divesting itself of every non-core, non-Seattle operation, it's Hearst for the win.

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