I agree that LEE will eventually be a takeout target as the newspaper industry continues to consolidate. Not only is LEE undervalued from an earnings and cash flow valuation standpoint, but it is also undervalued for its takeout potential.
I was surprised with GCI’s announcement of the hostile purchase of TPUB as they just completed the purchase of JMG. They purchased JMG for $280M which will add about $450M in revenue. That deal valued JMG at 9.2x EBITDA based upon 2015 EBITDA of $30.4M. The offer for TPUB is for only 5.6x EBITDA. GCI is making a low-ball offer and if they are serious about making a deal, they will raise the offer. I would not be surprised if they eventually offer close to $18/share which would be nearly a 7x multiple for TPUB.
Right now, if LEE was offered 5.6x EBITDA, the equity value after adjusting for $650M in debt would about $3.50/share. However, LEE is a better run organization than either JMG or TPUB. A mere valuation of 7x multiple would value the equity at over $7/share.
Wall Street certain undervalues LEE. I believe Berkshire’s newspaper division will eventually purchase LEE because of Buffet’s recognition that small town newspapers will continue to do well in their communities. I expect the purchase price will be multiples higher than the current $2.14/share price.