Geoff Gannon April 25, 2006

Journal Communications to Spin Off Telecom Unit

Journal Communications (JRN) announced it plans to spin-off its telecom business. Shareholders of JRN will receive shares representing 100% ownership in Norlight Telecommunications.

This is a positive development for Journal Communications. It makes an already attractive stock even more attractive. Shares of Journal Communications were up about 6% on the news. The current share price still represents something on the order of a 33-50% discount to Journal’s break-up value.

I don’t expect the company will sell or spin-off any of its other assets. Journal owns a major daily newspaper (The Milwaukee Journal Sentinel), a collection of community newspapers, over three dozen radio stations, over half a dozen television stations, and the aforementioned telecom business. At a minimum, these properties are worth somewhere between $15 a share and $18 a share. JRN currently trades at less than $12 a share.

The company says the Norlight spin-off will likely take place in about six months. Ultimately, I expect the two securities (combined) will trade above the current market price for shares of JRN. However, the size and nature of the business being spun off may result in a lot of indiscriminate selling. Follow the news on this for more details about the planned spin-off.

Shares of JRN are attractive right now. Although I wouldn’t want to own the telecom business, the spin-off may actually make shares of Norlight attractive as well, because I doubt many holders of JRN will want to keep their Norlight shares.

My advice would be to buy shares of Journal Communications now and follow the spin-off to see if there is an opportunity to buy shares of Norlight for less than they’re worth. But, don’t wait to buy shares of JRN, because you can get the media properties at a discount by buying now.

Also, if you currently own shares of JRN or plan to buy shares of JRN such that you will receive a distribution of Norlight shares, I would strongly suggest you do not immediately sell your Norlight shares even if you have no interest in owning the telecom business.

You should probably decide on a certain amount of time during which you will not sell your Norlight shares for any reason. If you don’t insist on this kind of discipline, you’ll likely be selling at the same time as many other investors who received shares in the spin-off. Alternatively, you could just do the homework and figure out what Norlight is worth. There should be plenty of information forthcoming in the months ahead. This is a story you’ll want to watch.

(Note: Journal has not yet announced the record date or the distribution date.)

Related Reading

An Analysis of Journal Communications

On a Possible Cause for JRN’s Undervaluation