Philadelphia newspapers sold to lenders

by Christopher K. Hepp and Harold Brubaker , Phladelphia Inquirer

Brian P. Tierney, CEO of Philadelphia Newspapers L.L.C., announced Wednesday afternoon that the company that owns the Philadelphia Inquirer, the Daily News and Philly.com has been sold to its senior lenders.

The $139 million deal includes a $39.2 million in debt and $69 million in cash equity, plus the value of the company's real estate, estimated at $30 million for the purposes of the bankruptcy auction.

"Brian Tierney was extremely gracious in defeat. He pledged his support for a smooth transition. The senior lenders were very grateful," said Ben Logan, a lawyer for the committee of unsecured creditors.

The senior lenders - which include Angelo, Gordon Co. and Credit Suisse - expect to close by late June, and there will be $10 million of liquidity to operate the business, said Lawrence G. McMichael, the lead attorney for Philadelphia Newspapers.

McMichael said that the new owners would have to get a loan to continue operating the business.

Robert J. Hall, an adviser to the creditors' committee who served as publisher of The Inquirer and Daily News for 13 years until he retired in 2003, said he will be chief operating officer under the new ownership.

He said that the company would hire a new chief executive officer and publisher, and that the new owners had someone in mind.

Hall said the Daily News, which two weeks ago won a Pulitzer Prize for investigative reporting, would remain in operation. "The Daily News is a very important part of this organization," he said.

But Hall noted that there would have to be concessions made on the part of the publishing company's unions.

Shortly after the results of the bankruptcy auction were announced, Tierney said: "We didn't make it. I think I'll go home tonight and sleep like a baby, which means I'll wake up every hour crying."

Tierney said he was happy with the level of debt that would be left on the company. According to company spokesman Jay Devine, that level would be about $36 million.

The final offer made by the local ownership group - consisting of home builder Bruce Toll; cable television mogul H.F. "Gerry" Lenfest; Revlon Inc. chairman Ronald Perelman and his philanthropist father, Raymond; David Haas, an heir to the Rohm & Haas chemical company fortune; Philadelphia insurance broker William Graham; and the Carpenters Union Pension Fund - had been the equivalent of $129 million, and included the company's North Broad Street headquarters building, which the company valued at about $30 million.

McMichael said he expected the sale to move smoothly to confirmation, with the company coming out of bankruptcy by the end of June.

"And that is a tremendous result," McMichael said.

In the final round, McMichael said, the bid went up by $10 million, which meant that the local owners' final offer was $95 million plus the building.

Dan Gross, president of the Newspaper Guild local that represents newsroom and advertising employees, when asked how employees should react to the new owners, said: "I don't believe this is something that they should fear. I am optimistic that they can prove Mr. Tierney wrong and show that they care about the newspapers and will treat the employees with the dignity and respect they deserve."

Gross acknowledged, however, that the unions would have to reach contract agreements with the new owners, which he admitted would not necessarily be easy.

One observer of the bankruptcy auction described it as "quite extraordinary."

"It was a very robust auction with a lot of bidding," said J. Scott Victor, managing director of SSG Capital Advisors L.L.C. in West Conshohocken and an official monitor of the auction.

Victor said that the lenders were determined to recoup their losses, and that the local investor group was passionate about keeping the company in local ownership.

"They were bidding equally along with the lenders at $10 million a pop until the very end," Victor said. "It was really quite extraordinary."

Hall said the new owners will form a board of directors that will include local and national business people and media experts.

Further, he said that concessions will be needed from the unions: "There's no question about it." Concessions were part of both bids, from the local owners as well as the senior lenders.

Hall did not give a concession amount, but he cited the $20 million discussed earlier by the local owners.

In discussing the future of the Daily News, Hall said, "If you look at the Philadelphia marketplace, there's plenty of room for two newspapers."

article originally published at Phladelphia Inquirer.

The media's job is to interest the public in the public interest. -John Dewey