Philadelphia Inquirer Lenders Win Bankruptcy Auction With $139 Million Bid
Lenders to Philadelphia Newspapers LLC, the bankrupt owner of the Philadelphia Inquirer, won an auction for control of the publisher against a group led by billionaire Ronald Perelman after almost 30 hours of wrangling.
The lenders group outbid two rivals at yesterday’s bankruptcy auction with a winning offer of $139 million, said Lawrence McMichael, an attorney for the company. The group, which includes Angelo Gordon & Co. and a Credit Suisse Group AG unit, got financial backing from New York hedge fund Alden Global Capital. The sale must still be approved by U.S. Bankruptcy Judge Stephen Raslavich in Philadelphia.
“The new owners are going to face the same economic challenges that everyone is facing in the newspaper industry: ad sales declines and circulation is falling,” Ken Doctor, an analyst with Outsell Inc. in Burlingame, California, said in an interview.
The group will own the Philadelphia Daily News and the Inquirer, the 10th-largest U.S. daily by circulation, in addition to the Web site Philly.com. Philadelphia Newspapers filed for bankruptcy in February 2009, more than two years after Chief Executive Officer Brian Tierney led a buyout of the publisher. The company listed assets and debt of as much as $500 million each.
“One of the key questions they are going to have to work out is whether Philadelphia can continue to be a two-newspaper town,” Doctor said. “If you’re looking to save costs quickly, you’ll probably start considering whether the Daily News justifies the newsprint and labor expenses.”
Philadelphia Newspapers is one of at least seven metropolitan newspaper publishers to file bankruptcy since 2008. The biggest include the owner of the Los Angeles Times and Chicago Tribune and the publishers of the Orange County Register and the Minneapolis Star Tribune.
The new owners of Philadelphia Newspapers said they won’t make wholesale job cuts as proposed in their initial bid, said Robert Hall, a consultant to the lenders’ group and a former publisher of the Inquirer. Hall, who will be the new company’s chief operating officer, said the group will retain about 2,500 full- and part-time employees. According to Tierney, the company now employs 4,500 people. Hall said that number is inaccurate.
“While we are disappointed that we did not emerge from the auction as owners, we do feel we helped to push the senior lenders to maintain the papers as going concerns and save nearly 4,500 Philadelphia jobs,” Christine Taylor, a spokeswoman for Perelman, said in an e-mail.
Fred Hodara, an attorney for the lenders, said the group was looking forward to a “good and fruitful relationship with the employees.”
William Ross, executive director of the newspapers’ largest union, the Newspaper Guild, said the union will try to negotiate a new contract with the lender group within 30 days. One goal is to unionize about 50 employees of the Philly.com Web site.
A court hearing to consider the sale is set for May 25. Raslavich, the bankruptcy judge, must also approve the company’s reorganization plan, including any new contract with the newspapers’ unions.
Perelman’s MacAndrews & Forbes Holdings Inc. was bidding with a group of Pennsylvania investors that included Bruce Toll, vice chairman of homebuilder Toll Brothers Inc. Their final bid was about $130 million, Tierney said at a press conference following the auction.
Perelman and his father, Raymond, replaced billionaire Ron Burkle and his Yucaipa Cos. as Toll group investors. The Perelmans would have contributed $27 million, including a $10 million loan, to the newspaper deal, according to court papers.
A third bidder, Canadian firm Stern Partners Inc., was also involved in the auction. The firm, which owns the Winnipeg Free Press, backed out when the bidding reached about $100 million, said Robert Keach, an attorney for the group.
“Stern Partners tabled a bid that we felt reflected the value of the company,” Keach said.
The offer by Perelman’s group was joined yesterday by H.F. “Gerry” Lenfest, a Pennsylvania philanthropist who said he would invest $10 million if needed. Lenfest said in a phone interview that he made an unsolicited call to Tierney to offer his assistance after reading about the auction in the Inquirer, a newspaper he thinks has contributed greatly to the region.
“I’m disappointed but hopefully the buyers will keep the present staff and the newspapers will continue with excellent reporting,” Lenfest said after the auction.
The sale is the lenders’ second attempt to gain control of the publisher. Last year, the group sought permission to submit their own reorganization plan that would have given it control of the company and about $60 million in debt. Under that plan, senior lenders would have owned about 95 percent of the company with the remainder going to unsecured creditors.
The lenders submitted a cash bid after a U.S. appeals court ruled that bankruptcy law doesn’t entitle secured creditors to bid their liens instead of cash at a public auction.
Tierney said in a statement that he was grateful the new owners have committed to preserving employees’ jobs.
“I look forward to a smooth transition and maximizing this treasure for our employees and the new owners of our company,” he said.
The Inquirer, founded in 1829, is the third-oldest daily newspaper in the U.S. and has won at least 18 Pulitzer Prizes. The Daily News, a tabloid founded in 1925, won a Pulitzer Prize this year for investigative journalism. The two newspapers have had a common owner since 1969, when they were bought by Knight Newspapers Inc.
The case is In re Philadelphia Newspapers LLC, 09-11204, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Philadelphia).
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