Creditors buy papers at auction

NEW YORK - A bitter 15-month battle for ownership of the city's two daily newspapers ended Wednesday when Philadelphia Newspapers L.L.C. lost a marathon bankruptcy auction to its senior creditors.

The media company, owner of The Inquirer, the Philadelphia Daily News, and Philly.com, was bought by its largest debtholders to conclude a tense, coffee-fueled, 29-hour bidding process at a law firm in midtown Manhattan. The price was $139 million.

The defeat ends a 45-month experiment in local ownership of the newspapers, which previously were the property of the Knight Ridder chain for more than three decades.

And it ends the passionate, colorful publishing career of chief executive officer Brian P. Tierney.

Tierney, who waged a spirited but contentious battle with his debtholders, showed much grace in defeat. When it was clear he had lost, he walked around a conference room and shook hands with each of his creditors, observers related. Tierney also promised to make the transition a smooth one.

"There's a passion you get for this," said Tierney, looking remarkably fresh despite a sleepless day and a half as he met with the media after the proceedings. "You get proud. It's special."

He said he would remain as long as the new owners wanted him to stay to ensure a smooth transition.

"I'm obviously personally disappointed because I love these papers so much," he said. "I love the people there so much and at Philly.com."

The price of $139 million was tens of millions more than the participants and expert observers expected. The finances of it all are complicated. It includes $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 auction.

The money will be used to satisfy a portion of the $318 million debt the creditors were owed by the company.

The new owners, New York-based hedge funds, including Alden Global Capital and Angelo, Gordon & Co., for the most part, will be led, for the moment, by a familiar name: Robert J. Hall, the publisher of the Inquirer and Daily News for 13 years, ending in 2003.

The basic facts do not do justice to the realities played out over 29 hours, 26 floors above Broadway, in the offices of Proskauer Rose, one of the media company's two law firms and host to the bankruptcy bidding.

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

"The lenders were determined to recoup their losses . . . and the investor [local] group had passion, and they wanted to maintain it as locally owned newspapers. They were bidding equally along with the lenders at $10 million a pop until the very end. It was really quite extraordinary."

"Those bids were going up $10 million, $10 million, $10 million, and I mean in cash too," Tierney said. "The last few bids were all cash."

The three sets of bidders, the local investors, the senior creditors and Stern Partners, a long-shot Canadian firm, gathered for the auction at 11 a.m. Tuesday. Disagreements over the bidding procedures delayed the bidding for 16 hours.

When the bidding finally began in the early-morning hours of Wednesday, with Stern Partners largely uninvolved, the local investors were buoyed by a $17 million investment by wealthy Philadelphia father-and-son, Raymond G. and Ronald O. Perelman. They also offered the company a $10 million loan.

Later Wednesday, H.F. "Gerry" Lenfest, legendary Philadelphia cable TV mogul, unbidden, offered the local investors $10 million. It was never put in play.

In the end, the new money wouldn't be enough to hold off the creditors.

The local group's final offer had been the equivalent of $129 million, which included the company's North Broad Street headquarters building, which the company valued at about $30 million.

Lawrence McMichael, lead attorney for the local group, said he expected the sale to move smoothly to confirmation, with the company coming out of bankruptcy by the end of June. The outcome still requires confirmation by U.S. Bankruptcy Judge Stephen Raslavich on May 25 in Philadelphia.

Challenges await the new owners, particularly a difficult business climate, a newspaper industry struggling in a digital age, and a unionized workforce that is wary of concessions and employee reductions.

Fred Hodara, the creditors' lead attorney, said plans included keeping the Daily News and naming a chief executive officer "in a few days."

He also said that a board of directors would be quickly created. "I don't know if any of the lenders individually will go on the board," Hodara said. "It's possible, but it will clearly be a blue-chip panel that comprises this board, but the makeup hasn't been set yet."

A beaming Hall, who has been an adviser to the senior lenders, said concessions would be asked of the unions: "There are going to be concessions, but the ideal situation is to negotiate those concessions with our unions so we can put these papers on a sound financial footing going forward."

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

Hodara said that negotiations would begin soon and that the goal would be to reach agreements before the company comes out of bankruptcy, a process that could take 45 to 60 days.

There were starkly different reactions from union leaders. Bill Ross, executive director of Local 10 of the Newspaper Guild, which represents journalists, advertising, and circulation staff, said: "We are excited to start working with the new owners . . . I don't want our members to be afraid. We are optimistic to start rebuilding our great newspapers."

John Laigaie, president of Teamsters Local 628, said: "Should employees be afraid? They've got to be ready to fight. . . . It puts your back against the wall, and you've got to be ready to fight."

William A. Graham, who lost his initial $31 million investment in the media company but agreed to join in the new effort, said the auction's outcome was frustrating.

"It's very disappointing, and I'm sad," said Graham, chief executive officer of Graham Co., a regional insurance broker. "I didn't think the senior lenders would bid $80 million, let alone $139 million."

Graham had been joined by philanthropist David Haas, home builder Bruce Toll, and the Carpenters Union pension fund.

Arriving back in Philadelphia on Wednesday evening, Tierney was tired but still animated. He relaxed with a Scotch on the train ride home, and he was happy to keep talking about the business, almost wistful about his stretch as a newspaper publisher.

He said he has been proud to sit in the office Walter H. Annenberg once occupied, looking out onto Broad Street from the 12th floor. He conceded he had been bitten by the "journalist bug."

"It's been a heck of a fight," 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."

Minneapolis Star Tribune

Sale date: Dec. 26, 2006

Price: $530 million

Purchaser: Avista Capital Partners

Current weekday circulation: 295,438

Avista, a New York-based partnership of former investment bankers, borrowed heavily to buy the Star Tribune from McClatchy Co., which had paid $1.2 billion for the newspaper in 1998. Faced with high debt and a sharp decline in advertising, the Star Tribune filed for Chapter 11 bankruptcy protection in January 2009. Angelo, Gordon & Co. led a group of creditors that agreed in September to exchange $480 million in debt for ownership shares in the new newspaper company, plus $100 million in new debt.

Newsday

Sale date: May 12, 2008

Price: $650 million

Purchaser: Cablevision Systems Corp.

Current weekday circulation: 334,809

Cablevision beat out media mogul Rupert Murdoch to buy the Long Island-based newspaper from Tribune Co. Tribune had been seeking to sell Newsday to lighten a $8.2 billion debt load it took on when Sam Zell took the company private in 2007.

San Diego Union-Tribune

Sale date: March 19, 2009

Price: Not disclosed

Purchaser: Platinum Equity

Current weekday circulation: 249,630

Platinum Equity, a California private-equity firm, bought the Union-Tribune at a rock-bottom price, estimated by the Wall Street Journal to be less than $50 million. That price was driven largely by the real estate holdings of seller Copley Press, including the Union-Tribune building and another facility.

Sources: Minneapolis Star Tribune; Associated Press; Wall Street Journal