In a day of dramatic twists and sharp exchanges in the Philadelphia Newspapers L.L.C. bankruptcy case, it was announced Monday that Raymond G. Perelman and Ronald O. Perelman, a Philadelphia father and son of wealth and renown, had joined the local investors bidding to own the newspaper company.

The tautest moment came in a hearing before U.S. Bankruptcy Judge Stephen Raslavich when the local investors said another bidder, the largest holders of the company's debt, had a provision in its bid to terminate the company's workforce and require employees to reapply for their jobs.

A lawyer for the senior lenders called the disclosure "unfair and despicable." Another lawyer representing the unsecured creditors asserted the provision was only the starting point for talks on staffing levels and compensation.

An attorney involved said such provisions are common in bankruptcy cases and Raslavich indicated nothing in the local group's proposal precluded that possibility.

The 15-month bankruptcy process moves to its most critical stage Tuesday in a law office in New York City, where three bidders - the local investors; the senior lenders; and a long-shot candidate from Canada, Stern Partners Inc. - will bid in an auction to own The Inquirer, the Philadelphia Daily News, and Philly.com, and take the company out of bankruptcy.

The announcement of the participation of the Perelmans was accompanied by word that California businessman Ron Burkle and his Yucaipa Cos. were no longer allied with the local investors. Burkle's involvement was announced late last week.

Lawrence McMichael, the attorney for the local investors, said all three bidders had been deemed qualified after their bids and financial data were examined. That means they are qualified to participate in Tuesday's auction.

The local investors' group includes, besides the Perelmans, William A. Graham, chief executive officer of the Graham Co., a Philadelphia regional insurance broker; the Carpenters Union pension fund; philanthropist David Haas; and Bruce E. Toll, vice chairman of home builder Toll Bros. Inc.

With the addition of the Perelmans, the members of local group did not think they needed the continued participation of Burkle, who was brought into the effort by Gov. Rendell.

The senior lenders include Angelo, Gordon & Co. and CIT Group Inc., among others, and Alden Global Capital, a New York-based investment firm whose involvement was also announced Monday.

Raymond Perelman, 92, a businessman and notable philanthropist, said Monday that the newspaper company was "a sleeping giant" that would rebound with a stronger national economy. "I'm happy to be involved," he said. Efforts to reach Ronald Perelman, a New York-based investor, were unsuccessful.

Brian P. Tierney, chief executive officer of Philadelphia Newspapers, said Burkle was "gracious" when told that local investors now thought they could bid for the company without his help.

"Ray Perelman just loves the papers," Tierney said. "He said, 'Just let me know if there is any way I can help.' "

Rendell confirmed that he had reached out to Burkle, whom he called "a very good friend of mine."

"When The Inquirer first got in trouble," he said, "I urged [Tierney] to have Yucaipa . . . make a bid, because Yucaipa has a great track record of working with the unions and not firing or laying off people but finding a way to preserve jobs."

Alden, an international investment firm that specializes in distressed debt, joined New York based-Angelo Gordon and other investors in their bid to buy the company. Alden, with offices in New York, Dallas and Houston as well as India and the United Arab Emirates, was described in court as the "lead" partner in a group of investors and lenders seeking to buy the company.

Alden was founded by Randall Smith, one of the earliest investors in distressed debt. Smith and his company buy assets that might be overlooked by other investors, and either manage them successfully or reduce expenses and sell them at a higher price.

Other lenders are Credit Suisse, Halbis Distressed Opportunities Master Fund Ltd., McDonnell Investment Management L.L.C., and Venor Capital Master Fund L.L.C.

Stern Partners is a Canadian company that owns a wide array of ventures, including newspapers in Winnipeg and Brandon, Manitoba. Ronald N. Stern is a Winnipeg native, and his bid is considered the least likely to succeed.

The auction is set for 11 a.m. Tuesday at the New York offices of Proskauer Rose, a law firm that represents the company.

It will be held in a large conference room, open only to the participants.

The auctioneers will be McMichael and Mark Thomas of Proskauer Rose. They will run the bidding process, which is quieter and less frantic than the popular image of an auction.

There will be a round robin, with each bidder given an opportunity to top the existing high bid. The minimum monetary bid increase will be $100,000.

After each round of bids, there will be a break of 15 to 20 minutes to allow the participants to reconsider their positions and prepare for the next round, McMichael said.

The auction will continue until the last bid goes unchallenged.

When the auction is completed, McMichael said, the company, in consultation with two sales monitors, will announce the winner - described as "the highest and best" offer.

Anyone who objects to the outcome may raise issues on May 25, when the company's plan faces a confirmation hearing before Raslavich in Bankruptcy Court in Philadelphia.

The most contentious part of Monday's hearing dealt with a section of the senior lenders' bid that McMichael said would require the existing company to terminate all its 4,500 employees, who then would be rehired at the discretion and under the terms of the new owners.

The provision requires the new owners to rehire just more than 50 percent of the workforce.

Tierney said the provision "was the worst of my worse fears."

When the provision was described by Marshall Sonenshine, a financial adviser to Philadelphia Newspapers, L.L.C., the courtroom echoed with groans from dozens of Teamsters who had filled the seats in support of Tierney.

Lawyers representing the lenders and Raslavich, however, were sharply critical of the testimony.

Gary Schildhorn, who represents the committee of unsecured lenders, called Sonenshine's description a misrepresentation of the provision's intent. Such provisions, he said in an interview, are typical in acquisitions and bankruptcies. They are meant only as a starting point for establishing employee levels and compensation, he said.

Raslavich chastised McMichael, saying raising the issue seemed designed simply to make more difficult an already contentious situation.

"Standing at the podium saying, 'Oh, by the way, the lenders intend to fire all the employees,' how can that be anything but inflammatory?" Raslavich asked McMichael.

Raslavich said that as he understood it, there was nothing in the local group's bid to preclude such cuts as well.

Fred S. Hodara, lawyer for the senior lenders, called the testimony "unfair and despicable." But he stopped short of saying flatly that the lenders would not invoke the provision if they won the auction.

"I do not want to talk about the issue here," he said. "We want to sit down and talk to the employees directly."

Senators' Reactions

U.S. Sens. Arlen Specter and Bob Casey issued the following statements on the potential sale of The Inquirer and Daily News:

Specter said: "I am deeply concerned by the news of potentially severe layoffs at both the Inquirer and Daily News. The prospect of firing all employees and then only rehiring 50 percent plus 1 would not only be devastating to the region but also to the quality of journalism. I urge all involved to protect these quality jobs and preserve these quality papers."

Casey said: "Corporate profits must not lead to job loss for more than 2,000 loyal and hard working men and women or a reduction of wages for thousands more. The Inquirer and Daily News are vital parts of the Philadelphia economy, community and consciousness."EndText

Contact staff writer Christopher K. Hepp at 215-854-2208 or chepp@phillynews.com.