By Lisa Larson
Managing Editor

Lee Enterprises Inc. announced Feb. 12 that it reached a definitive agreement to acquire Howard Publications, a family-owned company of 16 daily newspapers in a transaction valued at $694 million.

The purchase, which will be paid for with $440 million in cash and new bank borrowing, is expected to be accretive to earnings per share by approximately 15 cents in the first full fiscal year, beginning Oct. 1, 2002.

Howard newspapers have total daily circulation of 479,000 and include the North County Times in Oceanside and Escondido, Calif., (daily 89,346; Sunday, 90, 275), The Times of northwest Indiana (daily 88,101; Sunday, 95,346), and the Waterloo (Iowa) Courier (daily 44,948; Sunday 51,795). With the acquisition, Lee will own 38 daily newspapers and have a joint interest in six others, with total circulation of 1.1 million daily and 1.2 million Sunday in 18 states.

Mary Junck, Lee Enterprises chief executive officer, said the purchase fulfills a strategy announced two years ago when Lee decided to sell its television stations in order to expand in newspapers.

“The Howard newspapers fit precisely with our core strategy of buying midsize newspapers in good markets,” Junck said. “As we’ve said repeatedly, we believe that publishing newspapers in these size markets is a wonderful business, one that we have proven we know how to do well. Buying Howard will further strengthen our standing as the pre-eminent newspaper group serving midsize markets.”

William E. Howard of Howard Publications said that the family initially approached Lee.

“When we decided it was time to sell our newspapers, we identified Lee as the best possible operator with the keenest understanding of the kind of community newspapering we do,” he said. “I’m confident that Lee will make our newspapers more successful and provide more career opportunities for our employees.”

Junck said Lee plans to add value and increase profitability at the Howard newspapers through more aggressive sales of advertising and newspapers, the launch of niche publications, and expansion of online services, such as classified advertising programs and special sections. She said cost savings include central purchasing of newsprint and reductions in corporate overhead. Underpinning all of those efforts, she added, are “our strong local news products that serve communities well.”

“Lee has a talented management team with a great track record,” Junck said. “We’ve proven in the past 18 months that we’re among the best in our industry at driving advertising revenue and circulation sales, even in an adverse economic climate. We’ve gained a lot of experience in sales management and tactics, specifically tailored to midsize markets, and believe that through training, managing, benchmarking and incenting, we can drive more revenue and readers to Howard newspapers and their Web sites. At the same time, we’re impressed with numerous innovative selling and sales management tactics Howard has successfully executed, and we’re eager to move those to Lee.”

Lee agreed to pay $749 million in cash for 100 percent of the stock of Howard Publications, which, with adjustments, including $50 million of cash on the Howard balance sheet, results in an effective purchase price of $694 million. The purchase is expected to be neutral to earnings per share in the current fiscal year, exclusive of transition costs of $5 million and accretive thereafter.

“Owning Howard is an exciting opportunity. The chance to buy 16 successful newspapers at once doesn’t come along very often,” Junck said. “Obviously, this shows how the Howard family views Lee’s track record and management of newspaper people.”

The sale is subject to applicable governmental approvals, with closing expected in the second calendar quarter. The boards of directors of both companies have already given unanimous approval.

Executive alignment

Because of similar cultures, operations and market sizes, the companies expect the transition to be quick and efficient with little disruption. With the addition of Howard’s 2,400 employees, Lee will have about 7,200.

Linda Lindus, publisher of the Southern Illinoisan in Carbondale, will oversee two of the incoming papers, the Mattoon (Ill.) Journal-Gazette in and the Times-Courier in Charleston, Ill. Another of Lee’s existing newspapers, the Herald & Review in Decatur, Ill., will also become part of the group.

Michael Gulledge, publisher of the Billings (Mont.) Gazette, will have additional group responsibility for two of Lee’s existing newspapers, The Montana Standard in Butte and the Independent Record in Helena, as well as for Montana Magazine, also based in Helena. In addition to Junck, four other officers will have operational responsibilities.

James W. Hopson, vice president for publishing in Wisconsin and Minnesota, will oversee two of the incoming papers, The Times in Munster, Ind., and The Journal-Standard in Freeport, Ill. Lindus will report to Hopson, who also is publisher of the Wisconsin State Journal in Madison.

Michael E. Phelps, vice president for sales marketing, will gain additional responsibility, overseeing four of the incoming papers, the Waterloo Courier in Iowa, The Times and Democrat in Orangeburg, S.C., The Sentinel in Carlisle, Pa., and The Ledger-Independent in Maysville, Ky. He will also have group responsibility for Lee’s three existing newspapers in Iowa.

John VanStrydonck, vice president of publishing in the Pacific Northwest, will have additional group responsibility for one of the incoming papers, The Daily News in Longview, Wash.

Greg R. Veon, vice president for publishing, will oversee five of the incoming papers. They include The Post-Star in Glens Falls, N.Y., the Casper (Wyo.) Star-Tribune, The Times-News in Twin Falls, Idaho, The Leader in Corning, N.Y., and The Citizen in Auburn, N.Y. He will also oversee Lee’s joint interest in the Sioux City Journal in Iowa. Veon’s other responsibilities include Lee’s newspapers and other operations in Montana, Nebraska and North and South Dakota. Gulledge will report to Veon.

The publisher of the remaining incoming paper, Dick High of the North County Times in Oceanside and Escondido, Calif., will report directly to Junck.