Life Support for “Washington Post” Stock

The paper’s best chance for survival might be ensuring it’s not part of a newspaper company.

By: Harry Jaffe

Photograph by Dennis Cook/AP Images.

In 2007, Donald Graham declared the Washington Post Company “an education and media company.” The Post chairman was acknowledging that his company’s Kaplan education division was bringing in more revenue than its iconic newspaper and various TV holdings.

Now Kaplan is in deep distress, and the Post Company has unexpectedly bought the hospice firm Celtic Healthcare—a foray into a field that no one ever imagined the company entering. Will Graham announce one day that the Post is a health-care company, too? Does the brand-name newspaper, bleeding revenues, still fit into a company that includes cable television, six local TV stations, two social-media start-ups, and a sprawling international education division?

Breaking up the company and selling the paper “is one thing investors have been calling for for a while,” says Liang Feng of the investment research firm Morningstar, one of the few analysts who follow the Post Company. “Investors and Mr. Graham are in different places.”

Company stock once sold for close to $1,000 a share; now it’s hovering at $360, where it was back in 1997.

The newspaper-publishing division—which includes papers, digital platforms, and the online magazine Slate—reported a $38.4-million operating loss for the first six months of the year.

Will Don Graham ever divest the company of the newspaper he inherited from his mother?

“He has majority control,” says Feng, who believes the Post Company is undervalued. “He’s made it very clear he will keep the business together for a long time.”

Even with losses in education and newspapering, the company’s profits rose by 14 percent in the second quarter, thanks in large part to a 43-percent boost in operating income from its television stations, fattened by election-year political ads. And though the Post Company remains in relatively good shape, Kaplan is less of a shining star.

The Graham family placed its bet on Kaplan in 1984, when it bought the test-prep firm and expanded it aggressively into higher education. Kaplan began bringing in revenues at rapidly growing rates. As the newspaper lost readers, ads, and profits, Kaplan propped up Post Company balance sheets. But in recent years, government investigators found that Kaplan and other for-profit colleges were overselling their programs and leaving students in debt, mostly for federal student loans.

Students fled, and Kaplan tightened its standards. Operating income for the Post Company’s education division plummeted by 84 percent between the second quarter of 2011 and the second quarter of this year. In the first six months of 2011, it recorded income of $42 million; in the first six months of this year, it lost nearly $10 million.

Graham vowed to reform the schools and went on bended knee to Capitol Hill to soften federal regulations. Still, Kaplan continues to shrink in size and profits. In late September, the Post Company announced that Kaplan was closing nine and merging four higher-education campuses. The company gave no reason, but an accreditation commission had warned that some campuses were falling short.

Then this fall, Graham said the Post was buying a majority stake in Celtic, a midsize firm that provides hospice and home health care in Pennsylvania and Maryland.

“It kind of came out of nowhere,” Feng says.

It appears the Graham family wants to find a new Kaplan-like golden goose that will keep profits growing as the media industry continues to shift. With millions of baby boomers aging into retirement homes and—eventually—hospice care, the industry appears to be at a growth point, as Kaplan was decades ago.

Graham might be looking to boost profits so his board of directors won’t pressure him to sell the newspaper, as the board did with Newsweek, whose revenue collapsed before its fire sale to Sidney Harman. After a merger with Barry Diller’s online Daily Beast, the once-vaunted newsweekly appears headed soon to that great recycling bin in the sky.

Hospice care might keep the Washington Post alive.

This article appears in the November 2012 issue of The Washingtonian.