The New York Times Co.’s acquisition of The Boston Globe stands as one of the most inflated newspaper purchases in history and is generally regarded as a poster child for bad media investments.
According to a column in The Washington Post
, the Times Co. compounded its mistake by leaving a significant amount of money on the table when it sold the Globe recently for a pittance. The markdown was so steep it might have been appropriate for a sale at Boston’s now-defunct Filene’s Basement.
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It all comes down to the tax structure that the Times Co. used when it bought the Globe. It assumed it would own the Globe permanently, according to Post contributor Allan Sloan.
The Times purchased the Globe for $1.028 billion in 1993, using $160 million in cash and $868 million in Times stock.
Sloan said the Times should have added the $160 million cash portion to its tax basis in the Globe acquisition, but for reasons that are unclear – the company declined to comment – it did not do so at the time of the purchase.
When the Times files its 2013 corporate tax return, it will presumably recognize a loss on the sale of the Globe and its other bad Massachusetts acquisition, the Worcester Telegram & Gazette, which it bought in 2000 for $296 million in cash.
Boston Red Sox owner John Henry
paid only about $70 million last month for the combined Boston and Worcester assets. Following the acquisition, Henry wrote a first-person piece for the Globe about his purchase and the reasons for it.
“A bigger loss for tax purposes wouldn’t make any difference to the company’s reported profits, but it would make a whopping difference in its dealings with the Internal Revenue Service,” Sloan wrote in his Post column.
Because the Times Co. did not add the $160 million to its tax basis in the tax structure of its Globe acquisition, it will pay the IRS $56 million more in taxes than it needed to, plus state and possibly local taxes that would bring the money left on the table to about $60 million, Sloan estimated.
“Buyers don’t think much about the tax basis they’ll have in the acquired asset because they don’t expect to ever sell it, and therefore think the basis will not be relevant,” said tax expert Bob Willens of Robert Willens LLC.
The Post itself has some expertise in the economics of newspapers these days. Amazon’s Jeff Bezos bought the Post in August for $250 million after the newspaper company lost an estimated $49.3 million in the first half of 2013, the Huffington Post
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