When You Account For Pensions, The Boston Globe Sold For Negative $40 Million | Hacker News Reader

When You Account For Pensions, The Boston Globe Sold For Negative $40 Million

slate.com

45 pointsdkoch33 comments

> What's even more shocking is that the Globe has been doing great journalism—winning Pulitzers, etc.—and even turning a modest profit. But that's the difference between a growing industry (where Tumblr can sell for $1 billion with no profits or even meaningful revenue in sight) and a shrinking one.

Well, do any startups offer pensions? Maybe that has more to do with it...

It's kind of funny that the Globe was purchased for $1.1B 20 years ago and Tumblr was acquired for this amount in 2013.

Yes. Don't most funded startups have 401Ks?

There is a huge difference between a pension and a 401k. If my understanding is correct, an employer only contributes to an employee's 401k while they are working. There is no future obligation to the employee.

An employer who offers a pension effectively says, "if you work for me x years, I will continue to pay you y salary for the rest of your life."

Isn't that a final-salary pension as opposed to a defined-contribution pension? They're both pensions. (Though I agree a final-salary scheme is much more attractive, and as it happens, I have a couple of years in one from an old gig.)

A 401(k) is essentially just a retirement savings account. Money goes in regularly, the account has a specific balance, and any future obligations are managed in a well-defined way by a bank or brokerage. There is no opportunity to conflate the performance of the business with the ratio of savers to pensioners or with the performance of the investment itself.

The other kind of pension, which we generally hear about in large companies or governments, is indistinguishable (to me) from accounting fraud. The whole point is to make the business (or government) look better today, and make big promises today, and hide the costs and obligations far into the future with optimistic projections.

I am not a lawyer or expert on this matter.

No sane new organization offers pensions. Joint contribution individual accounts (like the 401k) are much more reasonable.

Any old org with pensions and half a clue should be scrambling to get out from under them.

Uh.... that's not how math works.

What you mean to say is "The Globe sold for $70 million, but if you think about the pension obligations, the buyer is really paying about $180 million for it." which is very different from the "sold for -$40 million", which isn't even a thing that makes sense.

No, the seller is retaining responsibility for the pension. Imagine that the Globe was worth $X including pension obligations. Then the Globe unencumbered by pension obligations should be worth $X+110M. The sale price implies $X+110M = 70M, so X = -40M.

That's not what the article says.

>That's because the terms under which John Henry is buying the paper stick the New York Times Company with the Globe's pension obligations, which are said to amount to around $110 million. Which is to say that the worth of the overall Globe enterprise is negative $40 million, not $70 million.

emphasis added

Notice that your emphasized words clearly state that the NYT (the seller) will pay the pensions, not the Globe's new buyer. So the article is correct.

The seller is keeping the obligation to pay for $110M in pensions. So from the seller's standpoint they -- assuming all rights to profits are surrendered -- are walking away from the Globe with a $110M long-term obligation and $70M in cash, stock or whatever. Still not equivalent to saying it's a $40M loss since the pensions will be paid out over presumably a much longer time than the sale payments will be received.

I'm assuming the pension liabilities are quoted in present value terms, which is usually the case.

I disagree, the math makes sense to me. Seller kept pension obligations, buyer didn't take them on.

Or perhaps the old parent company views pensions as an already sunk cost, and thus irrelevant, and thinks the actual operations of the paper are worth, you guessed it, $70M.

The article raises a decent point, but yes the -40 is obviously misleading. Why would anyone sell it for negative instead of just liquidate it? When NYT bought the paper it essentially paid 1bil + 100mil-ish assumption of pensions. Now when it sold it, it only got 70 mil.

It's better to correctly restate the purchase price, rather than make the selling price negative. But that wouldn't generate click throughs.

Edit: This is related to the Enterprise Value concept of a company. You include liabilities in this calculation when calculating a buyout valuation (not sure if that includes pensions or not; I don't do stocks anymore now because it's all just a giant federal reserve hedge fund)

Edit 2: wikipedia says EV should include unfunded pensions, which makes rational sense.

This math is wrong. The pension obligations are liabilities and not an immediate expense. Many companies have huge pension liabilities along with monstrous amounts of debt. What you need to look at is the equity, in other words assets - liabilities, and if that equity figure is more then 70 million, then the purchaser got a discounted deal.

No you are confusing the price (or market value) of a company and it's balance sheet. For many reasons the price that a company sells for is almost never the same as the shareholder's equity (i.e. equity = assets - liabilities). First not all assets or liabilities are marked to market (i.e. regularly revalued) generally because some are hard to accurately value (e.g. IP, brand, customer relationships). Second neither assets nor liabilities consider the expected future profits of the company. Third the value of something depends on the buyer and seller as they many have different opinions. Forth the value of an entire or large portion of a business is different than a small portion (control premium). And these are only some of the most important reasons - there are many more!

Just take a look at any publicly traded company. The market value of the equity (i.e. market cap) almost never be the same as the shareholder's equity. And if you wanted to buy the entire company you would almost certainly have to pay more than market cap.

Sure, that I know that book values doesn't equal market values. But what was being proposed was that the pension liability is an immediate expense that should be added to the purchased price of the acquistion -- which is something that does not make sense at all.

You'll see more of this. Judging from his wiki entry, John Henry (who names a kid that?) is apolitical, but when the NYTimes, LATimes, etc, finally get completely sold to Carlos Slim or a Saudi Prince or whoever, the editorial direction of the country will get more and more one-sided.

It's amazing any newspaper is still in business, but eventually it will be strictly a subsidized game.

John Henry is not listed in opensecrets, but newsmeat shows his campaign contributions. he doesn't appear to be apolitical:

http://www.newsmeat.com/sports_political_donations/John_W_He...

More one-sided? Most of the big dailies in the USA are already solidly left, editorially. Which way do you see the balance tipping?

[citation needed]

A citation is needed here but not for the original comment?

Peronally, I think this particular line of discussion is useless, with or without a link to some partisan "study" from one side or the other.

A good comment that I heard in personal conversation from a newscaster over a decade ago sums up most of the traditional media.

The line reporting staff overwhelmingly tend to be left wing. The owners tend to be extreme right wing. Which way the media goes on a particular issue depends on whether it raised to the personal attention of the owners or was left to the staff.

(Fox, of course, changed this by being right wing ownership that tried to make the whole outlet right wing..except for token liberals to provide the losing straw man arguments...)

Left vs right is a smokescreen. To see where the newspapers really lean, look to what they don't publish at all.

"What's even more shocking is that the Globe has been doing great journalism—winning Pulitzers, etc."

Wow! That buggy whip company is DOING GREAT! Some of their buggy whip makers just got awards from the Buggy Whip Makers Guild for their high quality buggy whips!

Regardless of delivery method the actual work of journalism has a role that has value outside of the advertising used to support it. Any news company, web based or otherwise, should aspire to that same quality.

You're right, journalism is completely old fashioned and we can just do with pundits and gossip.

...

Have you gone mad? The medium is irrelevant to the content.

I think the argument is that Pulitzers are a low-meaning metric for journalistic quality today given that they're awarded by an (allegedly irrelevant) subset of the media. I read the "buggy whip" part as humorous garnishing.

Trust in journalism is inherently tied to brand: we trust the Globe (or the Times or whatever) to do fact-checking for us. There is still no reason for me to trust anyone on the internet with this regard: it could be karl rove in his PJs for all I know. In this sense newspapers still hold immense value even though they've lost most ways of commodifying it.

Your analogy makes no sense. Journalism is hardly outdated.

I wonder what they jettisoned in terms of other liabilities though.

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