Disputes delay auction of newspapers

NEW YORK - Lawyers, financial advisers, secretaries, and three sets of potential bidders - a throng estimated at nearly a hundred people, by one participant - were still gathered early Wednesday morning in an effort to determine the next owner of Philadelphia Newspapers L.L.C.

After 14 hours in the 26th-floor warrens of a midtown law firm, the three groups vying to own The Inquirer, Philadelphia Daily News, and Philly.com could not even reach a juncture that allowed the bankruptcy auction to begin.

The bidding is to determine who will be the new owner of the newspaper company and bring it out of its 15-month stay in bankruptcy. However, disagreements over the status of bids that were submitted Friday, a prelude to the auction, prevented the bidding from starting.

The auction itself, when it actually begins, can be a lengthy exercise of round-robin bids followed by breaks for strategies.

The parties arrived at the offices of Proskauer Rose, one of two firms representing Philadelphia Newspapers, at 11 a.m. Tuesday.

At 1 a.m. Wednesday, J. Scott Victor, one of the sale monitors, and lawyer Andrew Kassner left the building and headed for a nearby Starbucks. They said the bidding hadn't begun.

The auction is to settle the company's $318 million of debt and permit it to come out of bankruptcy under new ownership.

There are three bidders for the company:

A group of local investors that includes philanthropist David Haas, home builder Bruce Toll, insurance brokerage owner William Graham, the Carpenters Union pension fund, and a late entry - Raymond G. Perelman and his son, Ronald O. Perelman, who allied with the local group on Monday. A court filing Tuesday indicated that Raymond Perelman, a 92-year-old Philadelphia businessman and philanthropist, had provided nearly $12.6 million in equity to the investors and that his son, a wealthy New York investor, had contributed $4.4 million. They also combined to give the investors a $10 million loan.

The senior lenders, creditors who own the majority of the company's debt. The lenders who are to bid are Angelo, Gordon & Co., Credit Suisse, Halbis Distressed Opportunities Master Fund Ltd., McDonnell Investment Management L.L.C., Venor Capital Master Fund L.L.C., and Alden Global Capital.

Stern Partners Inc., a Vancouver, British Columbia, company that owns two Canadian daily newspapers and an array of other ventures.

The local investment group had the backing of Brian P. Tierney, chief executive officer of Philadelphia Newspapers.

All three bids were made before Friday's deadline. Their details were not made public.

An earlier bid by the local group of investors was said to have offered $35 million in cash and a $17 million letter of credit for all of the company's assets except its headquarters building on Broad Street.

Just how the auction process was proceeding through the day, evening, and early morning was difficult to discern. Reporters covering the sale were confined to a basement conference room just off the law firm's library.

Occasionally, participants were seen coming or going through the lobby of the law firm, which is just off Times Square, but they uniformly declined to discuss the sale.

Among those seen briefly before the 11 a.m. start time were Tierney and, separately, Robert J. Hall, a former publisher of The Inquirer and now a consultant to the senior lenders.

Fred S. Hodara, lead attorney for the senior lenders, stopped briefly to speak to reporters before he too disappeared to the 26th floor.

"After today, it is all about sitting down with the employees," he said. " . . . Hopefully Brian will let bygones be bygones."

The tension of the case was on full display Monday during a hearing at which a company financial adviser testified that the senior lenders' plan called for all the media firm's employees to be fired with a guarantee that only just more than 50 percent would be rehired.

Tierney called the provision "the worst of my worse fears," and cited it as evidence that the senior lenders intended to gut the company. Tierney has pushed ceaselessly to have the papers remain locally owned.

The senior lenders accused Tierney of "unfair and despicable" tactics by airing the provision, which one lawyer said was common in such sales and was meant only as a starting point for establishing new levels for employment and compensation.

Almost all of the company's unions support Tierney and his effort to assemble local investors. On Tuesday, those unions issued a statement decrying the possibility of mass layoffs and warning they would fight back.

The auction itself is a culmination of more than a year of expensive legal jousting between the company and its senior lenders. By company estimates, more than $30 million has been spent so far on lawyers and other professionals involved in the bankruptcy. That is money that must now come out of the company's assets.

The two sides have fought over short-term financing, an unauthorized taping incident involving a representative of the senior lenders, and whether the senior lenders would be able to use their debt to try to purchase the company. That last issue was taken as far as the Third Circuit Court of Appeals and resulted in a ruling that denied the lenders that right.