UPDATE 2-GateHouse Media shares rise 20 percent in debut

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NEW YORK, Oct 25 (Reuters) - The shares of newspaper publisher GateHouse Media Inc. (GHS.N: Quote, Profile, Research) rose as much 20 percent in their market debut on Wednesday, boosted by the involvement of a private equity firm, analysts said.

The shares opened up 20 percent at $21.60 and closed at $21.17, or up 17.6 percent, on the New York Stock Exchange, a day after pricing at the top of forecast range.

The sudden rise took some analysts by surprise amid a difficult period for newspaper companies. Newspapers face competition for readers from the Internet, as well as advertising woes as a result of a slowdown in the slow housing market, troubles in the auto industry and other economic factors.

"We did not view that deal as very strong," said Ben Holmes, publisher of Morningnotes.com, an independent research firm based in Boulder, Colorado. "I suspect there is a surprise in their third quarter advertising numbers. That could be the only explanation for it."

The company also could be benefiting from its involvement with Fortress Investment Group LLC, Holmes said.

In May 2005, an affiliate of the private-equity fund purchased GateHouse from Leonard Green & Partners, L.P. for about $527 million.

Since 2002, Fortress has taken Global Signal Inc. (GSL.N: Quote, Profile, Research), Newcastle Investment Corp. (NCT.N: Quote, Profile, Research) and Aircastle Ltd. (AYR.N: Quote, Profile, Research) public and boosted share prices for each.

Gatehouse says its role as a publisher of smaller, local newspapers allows it to be the dominant news provider in some locations, according to documents filed by the company with the U.S. Securities and Exchange Commission.

Since 1998, the Fairport, New York-based company has acquired 249 daily and weekly newspapers and shoppers.

"These guys are really good at presenting themselves as great managers," said Francis Gaskins, president of IPO Desktop, an independent research firm based in Los Angeles. "They manage the assets to produce earnings."

GateHouse has a price to book value of 1.6, while newspaper publisher Lee Enterprises Inc. (LEE.N: Quote, Profile, Research) has a book value of 1.3. The New York Times Co. (NYT.N: Quote, Profile, Research) and McClatchey Co. (MNI.N: Quote, Profile, Research), much larger newspaper chains in bigger markets, both have a book values of 2.2.

A spokeswoman for Fortress and GateHouse declined to comment.

GateHouse raised $248 million on Tuesday with a 13.8 million share offering -- increased from an initial 11.5 million shares -- that priced at the top of an expected $16 to $18 range.

The pricing gave the company an initial market capitalization of about $621 million.

The company plans to use the net proceeds from the offering to repay debt.