Senior lenders again buy Philly newspaper company

The Inquirer and the Philadelphia Daily News were sold again to their senior lenders Thursday, this time under terms that require the sale to close with or without a contract agreement with the papers' drivers.

The lenders' bid of $105 million cash for Philadelphia Newspapers L.L.C., which owns the papers and the website Philly.com, was identical to its winning bid in April at the company's first auction. The total deal is worth $139 million when the North Broad Street headquarters plus some other incidentals are included.

The lenders' bid trumped an $85 million cash offer from a local partnership of businessman Raymond G. Perelman and the Carpenters Union pension fund.

The company that has been created by the senior lenders, Philadelphia Media Network Inc., had reached contract agreements with all of the papers' unions, except the drivers, represented by the Teamsters, who twice rejected tentative agreements with the company. The failure to reach an agreement before the scheduled closing date of Sept. 14 forced the second auction.

The auction, conducted before a packed courtroom of dark-suited lawyers, financial analysts, and representatives of the company's lenders, took just four hours, a blink of the eye compared with April's 29-hour marathon in New York City. U.S. Chief Bankruptcy Judge Stephen Raslavich presided.

The senior lenders opened with their winning bid, virtually ending the sale as it began. The bulk of the remaining time was devoted to wrangling over contract language in each offer to determine if any of it undermined the primacy of the lenders' bid.

The sale would seem to signal an end to the convoluted and antagonistic bankruptcy case that began in February 2009.

At the auction's end, there was a palpable sense of relief among representatives of the new owners, a collection of financial institutions that held the majority of the company's $318 million debt.

"It feels like we have lifted a cloud from this company," said Gregory Osberg, chief executive officer for Philadelphia Media Network. "We are very excited."

Nearby as he spoke were managers of many of the company's lenders, including Angelo, Gordon & Co., Alden Global Capital, and Credit Suisse.

"We feel that these are great newspapers in a great city, and we look forward to supporting the long-term success of the papers," John Angelo of Angelo Gordon, speaking on behalf of the new owners, said in a statement released later in the day. "We appreciate all of the hard work by everyone involved to reach this point, and we hope everyone will work with us towards a successful outcome."

Perelman, a 93-year-old millionaire and philanthropist who made his fortune buying and selling companies, was philosophical.

"Things happen. Life goes on," he said. "The way I see it, every day I get up is a good day. I just hope they close the deal."

Another of the day's participants was Brian P. Tierney, the outgoing publisher of The Inquirer, who was the leader of a local group of investors that bought the two papers and the website in 2006 for $515 million. Tierney had served as the company's CEO.

When not caucusing with his lawyers, Tierney watched much of the proceedings leaning against a back wall of the courtroom.

"It will feel good for us to get out of bankruptcy," he said afterward. Tierney and his lenders had a caustic relationship through much of the bankruptcy. In the end, he and his company agreed in court Thursday that the bid of the senior lenders was the strongest and deserved to prevail.

Because the new owners have put up a nonrefundable $15.75 million deposit with their bid, there is little reason to believe the deal will not be completed by the closing deadline.

To help guarantee that, Raslavich refused to permit a provision in this sale that a buyer could walk away from the deal if it was unable to reach contract agreements with all of the company's unions.

Just such a provision derailed the last sale. By last week's closing date, the lenders lacked only a deal with the drivers.

This time, the new owners will be coming to negotiations with more leverage: Without a new contract agreement, the new owners are under no obligation to continue to employ the drivers.

Fred S. Hodara, lead lawyer for Philadelphia Media Network, declined to say what his client would do if there was no contract agreement with the drivers. He said Raslavich had given the lenders till mid-October to reach an agreement.

"All options are open to us," he said.

He made it clear, however, that the new owners would not concede any ground on the issue that has separated the two sides: the drivers' pensions.

Philadelphia Media Network is opting out of all employee pension funds and has offered instead to pay into two defined-contribution programs. The drivers have been holding out for their pension. All the other unions have ratified contracts with defined-contribution payments replacing continued funding of pensions.

Hodara said Philadelphia Media Network would reach out to the drivers immediately to begin a new round of negotiations.

John Laigaie, president of the Teamsters Local 628, said his union was disappointed in the auction's outcome but was ready to resume bargaining with Philadelphia Media Network.

"We believe we would have done better under local ownership," Laigaie said, referring to Perelman and the Carpenters' fund. "But, guess what, we will deal with whoever we have to deal with. If they reach out to us, we are prepared to bargain."

With or without a contract with the drivers, Osberg said the company was prepared to begin to launch its strategic plan for its papers and website the moment the deal closes.

"We don't have any time to waste," he said.