Amazon.com, Inc. (AMZN), The New York Times Company (NYT): Does Jeff Bezos Know What He’s Doing With the The Washington Post Company (WPO)?

The ramifications of Amazon.com, Inc. (NASDAQ:AMZN) founder Jeff Bezos’ out-of-nowhere decision to invest $250 million of his own money in the The Washington Post Company (NYSE:WPO) flagship newspaper extend far beyond the narrow world of newspaper publishing. Although Rupert Murdoch’s 2007 purchase of the Wall Street Journal sent similar shockwaves through the industry, Bezos’ foray into print represents the first time that a technology entrepreneur has “crossed over” and purchased a decidedly analog media property.

While Bezos has been coy about his intentions with the paper, most believe that he approaches this situation from a position of goodwill. However, good intentions alone will not produce a happy ending to this story. Bezos is known for his business acumen, but his ability to fix the Post’s myriad problems remains in question. For investors with exposure to the The Washington Post Company (NYSE:WPO), a “Post-less” Washington Post will provide additional challenges as well.

The Post, The New York Times and Amazon

The The Washington Post Company (NYSE:WPO) is actually one of the more successful U.S.-based “print media” firms. This might be because it has a rather diversified portfolio of non-print properties. In addition to its flagship daily, the company also operates several broadcasting stations as well as a cable and telephone provider with a built-in customer base in the Southern Tier of the United States. Further, it manages nearly five dozen charter schools and runs the highly visible Kaplan Test Prep service. This last property is regarded as its “moneymaker.”

The Post Company competes with the The New York Times Company (NYSE:NYT). The New York Times lacks a big-ticket “other business” like Kaplan, but it does manage a very successful online edition of its flagship paper. Despite the relative smoothness of its transition to the digital landscape, the The New York Times Company (NYSE:NYT) has struggled with profitability issues and has dramatically shrunk its footprint. Meanwhile, Bezos’s Amazon.com, Inc. (NASDAQ:AMZN) is a retailing behemoth that has been getting deeper and deeper into the world of online publishing. Although Mr. Bezos is purchasing the The Washington Post Company (NYSE:WPO) independently of the company he founded, it never hurts to remember his origins.

Even without its flagship, the The Washington Post Company (NYSE:WPO) would be several times larger than the The New York Times Company (NYSE:NYT). Its market cap of $4.4 billion compares to a valuation of $1.8 billion for the New York Times. By comparison, the market values Amazon.com, Inc. (NASDAQ:AMZN) at roughly $136 billion. Interestingly, Amazon.com, Inc. (NASDAQ:AMZN) actually lost money in 2012: Its loss of $100 million on $66.9 billion was not excessive, but it was certainly unexpected. The New York Times Company (NYSE:NYT) maintained a 10 percent profit margin on revenues of $2 billion, and The Washington Post Company (NYSE:WPO) reported a 2.5 percent margin on a take of just over $4 billion. All three firms have manageable debt loads.

How the Deal Is Structured

According to reports, Bezos paid $250 million in cash for the The Washington Post Company (NYSE:WPO). Since he is not taking over the entire Washington Post Company, there will be no exchange of stock or arbitrage premium for the company’s current investors. However, the loss of its flagship will force the Washington, D.C.-based company to drop its iconic name. Although Bezos will assume full control of the company, his day-to-day role remains unclear. Most market-watchers expect him to function as the company’s chief executive.