LOU GRANT, 08-10-2008

Geoff,



While the move of a Company to private status might save it $10 million a year in expenses, I would expect that price to be more associated with a large company that was going through large legal expenses than the typical expenses of being a public company. For the sake of argument, if a company with the size of the Sun-Times Media Group was spending that much each year for being a public company, it would need to be worth an additional $10 million a year times the net present value of that money for say five or ten years in addition to the stakeholders value of the assets.



That precludes a lot of mid-size companies that have instead elected to go public, from being public, if you get my drift. Why be public if that is the cost of being public?



In other words, first, there has to be a value for the stakeholder in holding shares of a public company that does not exist in the ownership of the private company and second, the $10 million a year seems a generous estimate of the annual costs of being a public company.



Figures I located on the Internet estimate the cost of being public at about $250,000 per year and up. Even this cost doesn’t reflect the true cost of the smallest public companies, say those with capitalizations of less than $5 million, that trade on the OTC bulletin board or NASDAQ.



So, Cyrus is overestimating the cost of being public. And further, who is going to take this company private? The STMG has been for sale for months and there are no real bidders apparent out there. Without a party to take the company private, this discussion is rather pointless. Except, the management’s failures will not be so public.



Here is a brief idea of the cost of being public for the STMG: maybe a reader will flesh out some of these guesses.

Investor relations officer, staff support etc $120,000

Outside audit of financial statements 200,000

Senior staff time associated w/ being public 75,000

Oxley-Sarbanes compliance 150,000

Print Annual report, AGM, other shareholder

Communications, transfer agent, etc 200,000

Listing on exchange 50,000

Other costs, legal etc. 200,000

TOTAL *just a guess $ 995,000



I’d ask the STMG why their costs for being public are so much higher than normal? What is management not able to control that is driving costs? In this depressed market for newspapers, and without a buyer, talking about damaging shareholder value with a move like this seems very short-sighted. A better plan would be to control the expenses that are driving cash from the company at a rate that is probably ten times what would be normal.



As my blog mentioned before, the management of STMG makes a lot out of the $50 million annual savings program it initiated last year. But that program is not going to allow the Company to survive. Now senior management is trying to hide its lack of balls by pointing to out of control expenses. Well, I’d submit, it is not selling ads or newspapers. Why isn’t this cost under better control?



Lou Grant