The future of The Washington Post Co. without its flagship newspaper

The sale of the Washington Post newspaper Tuesday marked an emotional milestone for its former parent company, but the firm’s future long ago stopped revolving around its flagship publication.

What comes next is as much a mystery as the company’s new name, which has yet to be unveiled. Chief executive and chairman Donald E. Graham is 68, with no obvious successor. And Kaplan, the education business that could constitute about two-thirds of the company’s revenue, is in the middle of a massive turnaround.

Without the newspaper, the firm’s focus on Kaplan will be starker than ever, even as it maintains an odd assortment of other subsidiaries — including a Phoenix-based cable business and a recently acquired supplier to boiler manufacturers — and hunts for ways to redeploy a small mountain of cash from the $250 million sale of the newspaper division to billionaire Jeffrey P. Bezos.

A few surprising acquisitions this year have led to speculation that Graham will turn his company into a mini-Berkshire Hathaway, the legendary holding company run by longtime Graham family adviser and former company board member Warren Buffett. As of June 30, before the sale to Bezos, the company was sitting on nearly $387 million in cash.

Graham bats down the idea of replicating Buffett’s success. “No other company can be compared to Berkshire. There’s nothing comparable and never will be,” he said in an e-mail. “We’ll do acquisitions in different business lines, but not in the expectation we can do anything remotely like Berkshire.”

What will be left after the sale of the newspaper.

The Post Co. has long had a history of making modest investments in seemingly random industries, building those businesses patiently over time. While some have gone sour, others have become major parts of the company. Executives and longtime shareholders say that approach is unlikely to change.

“I don’t think there’s necessarily a playbook,” said Mark Hughes, director of research at Lafayette Investments in Ashton, which owns Post Co. shares. “I don’t think they wake up in the morning and say, ‘We want to get into health care.’ I think they’ll look at everything coming down the road, and if it makes sense they’ll make sensible offers.”

The Post Co. branched into education, cable and television stations through these kinds of deals, allowing it to diversify far beyond newspapers and become a $4 billion company of many different units, each run very independently.

Kaplan’s higher-education business was turbocharged by a $165 million acquisition in 2000, when The Post Co. acquired Quest Education, an Atlanta-based chain of vocational schools.

This year, the company bought a majority stake of Celtic Healthcare, a small hospice company, and purchased Forney, a global supplier of products for power and industrial boilers.

Beyond Kaplan, which is based in New York, 20 percent of the company’s revenue last year came from Phoenix-based Cable One, which provides cable services largely in the country’s Western region. Ten percent was from Post-Newsweek Stations, which owns six television stations in Texas, Florida and Michigan. That means that without the newspaper, none of the company’s major divisions will be based in the Washington region.

The company is also putting up for sale its long-held downtown Washington headquarters, which is assessed by the D.C. government at nearly $80 million.

Timeline

The major events that have shaped the Washington Post Co.

Even without further acquisitions, there are plenty of other areas for the company to tinker with in its existing business: publications such as Slate, The Root and Foreign Policy; the WaPo Labs team, which is working on technology that curates news for readers; and the social-media marketing firm SocialCode.

The company also retains its 16.5 percent share of Classified Ventures, which runs Cars.com and Apartments.com. The Post Co.’s share is worth about $300 million before taxes, according to Craig Huber, an independent media analyst.

The company’s stock has been on a tear all year, rising nearly 70 percent in 2013. The day the sale of the newspaper was announced in August, the company’s stock rose to a five-year high — an indication of how big a drag the newspaper had become to the company in the eyes of Wall Street. Another contributing factor to the stock’s rise: The company’s TV stations have become more highly valued as the sector profits from fees charged to cable and satellite operators for the right to air local TV signals.

It is not clear what the new company will be named. Graham has even asked one of his daughters, an opera singer, to help him come up with ideas, people familiar with the matter said, speaking on the condition of anonymity to talk openly about internal discussions.

But there is an even bigger question looming than the name, and that’s who will succeed Graham. In five years, he will be the age of his mother, Katharine Graham, when she stepped down from the chief executive post in 1991 and handed the reins to her son.

There are no obvious choices to outside observers. Katharine Weymouth — The Post’s publisher and Graham’s niece — is leaving the company to continue running the paper for Bezos, though she remains a member of the board. Graham’s daughter Laura Graham O’Shaughnessy runs SocialCode, which nearly doubled its revenue last year but remains a small part of the company. Then there is Andy Rosen, who has run Kaplan since 2008. He is not a member of the family but is deeply respected by Graham.

In the meantime, executives are hoping the sale of the newspaper, however painful, means that the company’s top management will have more time to attend to the less visible businesses.

“Without Newsweek and The Post to distract them, they’ll have a little more time to perhaps give us a little more attention,” said Tom Might, head of Cable One. “We get such little attention. A little more would probably be good.”

But the majority of Graham’s attention may well be focused on Kaplan, which says it is trying to differentiate itself from competitors by emphasizing quality and offering refunds to students who do not like what they see.

“Most value investors who own [Washington Post Co. stock], we don’t invest for WaPo Labs,” said James Pan, a shareholder since 2005. “We just hope that frankly . . . Kaplan gets back to something resembling normal.”

As Graham wrote in his annual letter to shareholders in February, “the future of The Washington Post Company is the future of Kaplan.” He added that even if Kaplan saw modest improvement in 2013, “we have a long way to go.”

Since its acquisition, no single division has ever accounted for a bigger share of the company’s revenue than Kaplan. But after years of being the company’s cash cow, the education division’s profits have been clobbered by tougher government regulations and scandals over predatory marketing techniques that damaged the reputation of for-profit schools.

Kaplan lost more than $105 million in operating income last year, compared with a profit of $206 million in 2008. The most recent quarters have shown some improvement. Operating income in the second quarter was $23.7 million, compared with $3.7 million a year before.

There is also more competition from nonprofit and state schools, which are increasingly offering online courses, an area where Kaplan has been active for more than a decade.

“We see the increasing acceptance of online instruction as good for us, as we have superior expertise in this arena,” Melissa Mack, Kaplan’s spokeswoman, said in an e-mail.

Kaplan University also has offered a trial period to students, one of several ways it is trying to rehabilitate its image.

Graham says demand will remain high for the education Kaplan offers.

“People around the world will be hungry for a quality education (of many types) for a long, long time to come,” Graham said in his e-mail. “Kaplan can help serve those students.”

Kaplan’s test prep business lost money last year, as it has for a while now, though its numbers are improving. And the company’s international business — now more than twice the size of the test prep division— is growing in places such as Singapore.

“There’s still no resurgence, but at least it’s starting to show signs of a bottom the last four quarters,” said Huber, the media analyst.

“I think the world of Don Graham as a manager,” said Hughes, of Lafayette Investments. “They’re playing a tough hand there, between the difficulties with the newspaper and Kaplan.”

Steven Mufson contributed to this report

Jia Lynn Yang is a business editor at The Washington Post.
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