2nd auction of newspapers likely to bring same result
For Philadelphia's daily newspapers and their readers, the ongoing federal bankruptcy case is beginning to resemble "Groundhog Day," the 1993 movie in which actor Bill Murray, playing a TV weatherman, is forced to relive the same events, day after day, every time his clock radio jolts him awake.
For Philadelphia's daily newspapers and their readers, the ongoing federal bankruptcy case is beginning to resemble "Groundhog Day," the 1993 movie in which actor Bill Murray, playing a TV weatherman, is forced to relive the same events, day after day, every time his clock radio jolts him awake.
The federal judge in charge of the bankruptcy case has scheduled an auction for tomorrow - the second one in five months - to sell the Daily News, the Inquirer and their website, Philly.com, to the highest bidder.
Although anything's possible, those closest to the action expect the same result that the last auction produced in April: The new owner of the newspapers is likely to be a group of the company's biggest creditors, a coalition of hedge funds and other investment firms holding more than $200 million of the newspaper's bad debt.
The aftermath of the auction is expected to follow a similar pattern: speedy collective bargaining among the new owners and most of the newspapers' unionized workers, leading to modest wage cuts, unpaid days off and other concessions.
And then the new owners will face the same hurdle they haven't yet been able to clear - about 340 Teamster truck drivers who appear determined to keep their existing, defined-benefit pension plan - a benefit that the other unions already have given up.
The ultimate confrontation between the new owners and the Teamsters may still be several weeks away. But tomorrow's auction is expected to strengthen management's hand, by allowing the new owners to impose their own working terms and conditions on any unions that refuse to sign new contracts. Those unions would be faced with a choice to take it or leave it - in other words, strike.
The secured creditors' group is led by Angelo, Gordon & Co. and Alden Capital Group. After they bid $105 million in cash to win the April auction, they were joined by a dozen other investor groups, collectively holding 77 percent, or $245 million, of the company's secured, nonperforming debt.
Those numbers could shift with the results of this week's auction. If the winning bid is significantly lower than $105 million, it will reduce payments to secured creditors - perhaps leading some to re-evaluate whether they want to be part of the buyers' group, facing a risk of labor problems, or walk away with some cash.
Other bidders may also compete in tomorrow's auction.
Philadelphia businessman Raymond Perelman, 93, attended the hearing last week at which Chief U.S. Bankruptcy Judge Stephen Raslavich set up the new auction. His son, Ronald Perelman, a New York City dealmaker with a fortune valued at $11 billion, joined his father in a $95 million bid for the newspapers in April.
But the business world does not regard the Perelmans as soft touches. Both have made their fortunes in corporate buyouts and takeovers, finding underachieving companies that they were able to buy, restructure and resell, usually at a profit. With the future of the newspaper industry uncertain, the Philadelphia papers do not fit the Perelmans' normal investment model.
The tight schedule for closing a deal - the winning bidder will have to settle by mid-October or risk 15 percent of its bid, at least $7.5 million - also favors the creditors' group.
They have already negotiated contracts with 15 of the 16 newspaper bargaining units, and their talks with the Teamsters essentially narrowed down to the pension issue.
Anyone else would face a steep learning curve trying to reach agreements with the different newspaper unions, on top of the uncertainty posed by the Teamster drivers.
