Donald Salter Communications Notes

CASE: DONALD SALTER COMMUNICATIONS

Plan:

1) Challenge facing Jim Myers when he becomes CEO in 1991

2) Assessment of the new incentive plan

3) How should business value be calculated/estimated?

4) How do we turnaround this business?

1)

• US recession --> newspaper industry crisis

○ Advertising spending decrease --> revenue decrease

○ Newsprint cost increase

○ --> these two points above leads to eroded margins

• Structural change --> more TV

• Portfolio performance

○ Commercial printing, ok

○ Radio division, negative

○ Colorado Newspaper + Boise, negative

○ Book, negative

• $70 million lawsuit in Texas

• Financial controls

○ Invested in state of the art printing facility ($30 mil.) without any real cost-benefit analysis

○ Buying newsprint at a lower discount than competitors

○ Acquisitions of Colorado Newspaper in 1987 at an "inflated price"

○ Two small newspapers in Idaho operated separately although only 30 miles apart (lack of scale)

○ Performance evaluation/incentives: Short term accounting measures (book value is used)

§ Book value < true MV

§ Net income not equal to cash flow

§ Net income can be manipulated

• Governance model

○ Stakeholder vs. Shareholder value

§ Stakeholder:

□ Community commitment

□ Quality

§ Shareholder:

□ Cost-cutting

○ Family conflicts of interest:

§ Book value issue