Publisher Brian Tierney fought strenuously to retain local control of The Philadelphia Inquirer and Philadelphia Daily News, rounding up business moguls Raymond and Ronald Perelman, H.F. "Gerry" Lenfest and others. But the final bidding went in eye-popping $10 million increments, and the investors ultimately felt they had to walk away.
"They paid a lot of money for it. We stayed in it as long as we thought made sense," said 92-year-old philanthropist Raymond Perelman of Philadelphia, who along with son Ronald, the Revlon chairman, offered $27 million in cash and loans.
"I wish them luck. And we'll see how it works out," Perelman said.
Despite the bitter loss, Tierney pledged to work toward a smooth transition in ownership. He said he took comfort in the creditors' stated commitment to both the employees and quality journalism.
The new owners include the hedge funds Alden Capital and Angelo Gordon & Co, along with Credit Suisse and other banks. They will install a former publisher of the newspapers, Robert Hall, as interim chief operating officer. The company, which also operates the Philly.com web site, will retain just $36 million in debt, down from $400 million before the February 2009 bankruptcy filing.
"It's going to be a beautifully capitalized enterprise, so it will have every opportunity to flourish," said Fred Hodara, a lawyer for the secured creditors group.
Hall pledged Wednesday not to merge newsroom operations at the broadsheet Inquirer and smaller, tabloid Daily News, saying he will instead market the unique "flavor" of each.
The creditors also agreed during the bidding to negotiate with the company's labor unions rather than oust them - and gut the staff - as many had feared based on Tierney's characterization of the creditor's initial bid.
Still, Hall called cuts unavoidable given the industry's continuing woes.
"Every newspaper in the country is reducing operations," Hall said.
The newspapers have 2,000 full-time and 2,500 part-time employees, most of whom are unionized workers.
Signe Wilkinson, a Daily News editorial cartoonist, said that despite the uncertainty the auction spawned, newsroom employees were hoping for the best.
"Nobody knows what it means yet," said Wilkinson, who won a Pulitzer Prize in 1992. "I hope the owners respect the fact that these are two terrific newspapers."
The Daily News won another Pulitzer this month for investigative reporting, for a series on rogue city narcotics officers.
The auction started at 3:45 a.m. Wednesday, after 17 hours of haggling over how to rank the bids and other auction rules. The winning bid includes $105 million cash plus the $30 million newspaper building.
The local group's bid hit $129 million by Wednesday afternoon, but it was becoming evident that creditors would keep topping any Philadelphia bid by $10 million.
"It was kind of electrifying to see $10 million flying across the room so fast," Tierney said.
Tierney, a bold and sometimes brash former public relations executive, compiled a group of local investors including home builder Bruce Toll to buy the company four years ago for $515 million. They filed for bankruptcy early last year, unable to shoulder the huge debt as circulation and revenue fell off.
Secured creditors said they bid to try to recoup their $318 million investment. The new owners - comprised of some if not all of the original creditors group - will also assume $36 million in existing debt, an amount that Hodara said the company could handle.
The bankruptcy was costing the company $2 million a month in legal and business fees, about equal to the operating profits for much of last year. Those costs should largely end if the company emerges from bankruptcy in June, as expected.
"I think things may turn out right," said Lenfest, a cable television pioneer who offered Tierney up to $10 million on Tuesday, as the auction was set to start. "I think the management and staff at the Inquirer are the true asset of the newspaper. I think they will recognize that."
Hodara said that Angelo Gordon and other hedge funds involved are known for being patient, long-term investors.
"They intentionally chose to come into the newspaper industry at this time, with these particular newspapers, and that's obviously with the goal of growing this investment," Hodara said.
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Associated Press Writers Patrick Walters and JoAnn Loviglio in Philadelphia contributed to this report.
