Philly newspapers set for 2nd auction next week

(AP Photo)
September 14, 2010 3:24:52 PM PDT
Philadelphia's two major newspapers go on the auction block again next week after creditors failed to close on their planned $139 million purchase by Tuesday's deadline.

The expedited re-sale of The Philadelphia Inquirer and Philadelphia Daily News is now set for Sept. 23, this time in open court.

Chief U.S. Bankruptcy Judge Stephen Raslavich said the company has "languished" in bankruptcy for too long.

The newspapers will now be sold "as is," with no conditions or contingencies attached. That's a marked change to the April auction that included an escape clause if creditors couldn't sign labor contracts with all 15 employee unions.

They ultimately made deals with all but one: Teamsters drivers concerned about losing their defined-pension plan.

"This is David and Goliath. Hedge funds with $29 billion in assets under them refuse to throw down a few crumbs to drivers trying to protect their families?" asked driver Marty Bell, as Teamsters celebrated the creditors' setback Tuesday outside the courthouse.

The winning bidder this time must complete the cash sale by about mid-October or lose a 15 percent deposit.

The second auction could come down to a rematch between a consortium of bank and hedge fund creditors and a group of mostly local investors and philanthropists.

Philadelphia business mogul Raymond Perelman - who, along with his son, Revlon Chairman Ronald Perelman, helped push the local bid past $100 million last time - attended Tuesday's court hearing.

"He continues to be interested in helping Philadelphia - nothing startling, nothing new," said the elder Perelman's lawyer, J. Gregory Milmoe.

The two factions had tangled for more than 40 hours in the closed-door auction in New York before the local group folded.

The creditors then had won the right to bid with some of the $400 million owed them from the 2006 sale. The new plan filed Tuesday calls for an all-cash bid, but creditors still vowed to win it.

"I think it's a tremendous waste of money and time," Publisher Greg Osberg, who works for the creditors, said of the need for a second auction.

Local investors led by former public relations executive Brian Tierney and luxury home builder Bruce Toll paid $515 million for Philadelphia Newspapers in 2006. They filed for bankruptcy in February 2009, as the industry faltered and they couldn't refinance their $400 million in debt.

Tierney will not return to the helm, a company lawyer said.

"Brian will be actively involved in trying to get bidders to the table. Brian will not be a bidder," company lawyer Larry McMichael said.

The creditors' group is led by hedge funds Alden Global Capital, Angelo Gordon & Co. and other financial institutions.

Their management team, Osberg and Chief Operating Officer Bob Hall, had warned Monday that the newspapers may be shut down for a time if the drivers refused to sign by Tuesday's deadline.

If they prevail next week, they could unilaterally impose conditions on the drivers, they said. However, they have vowed to honor the contracts negotiated with the other unions.

Those contracts call for cost cuts of about 13 percent across the board, including a 6 percent wage cut for editorial employees.


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