Wednesday, October 03, 2012

The Washington Post Enters the Healthcare Business?

Reuters reports this morning that the Washington Post has acquired Celtic Healthcare, a home healthcare and hospice services provider here on the east coast of the United States.   I have to admit to being puzzled by the move.  I'm curious to learn more about the rationale for this acquisition.   As many of my readers know, the Washington Post has moved away from a reliance on the newspaper business given the disruption that has taken place in that industry.   For a number of years, the company generated strong growth from its other major line of business - the Kaplan education unit.  However, that unit has been plagued by the controversies surrounding for-profit educational institutions in the past couple years.   Therefore, perhaps the Washington Post is looking for another new line of business from which it can generate the growth that is lacking in the core newspaper business.    The question, though, is how investors will react to what looks like a strategy of unrelated diversification.  Why would the Washington Post be better at operating a healthcare company that a firm focused in that industry?  

Reuters offers a brief statement by Donald Graham, CEO of the Washington Post, explaining the deal:  "Our acquisition of Celtic Healthcare is part of the Post Company's ongoing strategy of investing in companies with demonstrated earnings potential and strong management teams."  While that may be true, strong earnings and great management talent alone do not justify an acquisition in an unrelated business (in most circumstances).  The question is what value can the Washington Post add to this business.

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