Local group boosts bid for Philadelphia Inquirer, Daily News to $87M; auction next month

Locals raise bid for Philadelphia papers to $87M

PHILADELPHIA — A local group sweetened its bid for The Philadelphia Inquirer and Philadelphia Daily News on Wednesday, saying it would pay another $20 million over five years in addition to the $67 million in cash and real estate that it has previously offered.

The group includes Toll Bros. co-founder Bruce Toll and Rohm & Haas heir David Haas and will be competing at a bankruptcy court auction on Nov. 18 for assets of the media company.

Senior lenders are also expected to make a bid and want to replace current management, including CEO Brian Tierney.

The company known as Philadelphia Newspapers filed for Chapter 11 bankruptcy protection in February, hobbled by $400 million in debt. It had been acquired three years earlier for $515 million, most of it borrowed. The current owners hope the auction will erase the remaining debt.

The local group had initially offered $37 million in cash and $30 million in real estate for the newspaper assets. On Wednesday, it added a $20 million promissory note to be paid over five years to the bid.

“This is putting $20 million in debt on the company, which we think is a doable amount,” said company spokesman Jay Devine said Wednesday. “It’s a way for us to … give (creditors) $20 million more, but not have to do it all at once.”

Senior lenders are preparing a rival bid and have a key advantage: the right to use the $300 million in “IOUs” they already hold from owners to bid at the Nov. 18 bankruptcy auction.

The senior creditors include the Royal Bank of Scotland Group PLC, CIT Group Inc. and Angelo, Gordon & Co.

They argue that Tierney’s team has tried to demonize them through a “Keep It Local!” publicity campaign that suggests outside creditors would slash news operations in pursuit of profits.

Creditors say they, too, hope to see the broadsheet Inquirer and tabloid Daily News “survive and thrive,” in the words of lawyer Andy Kassner, who represents Citizens Bank, the agent for senior lenders.

Employees have gone through several rounds of layoffs in recent years amid sharp industrywide losses, and have few guarantees no matter who takes the helm. Their contracts, which expired in August, are being extended monthly, and the company only began labor talks in late September, citing the urgency of bankruptcy matters.

The Newspaper Guild of Philadelphia, which represents writers, photographers and advertising staff, fears the company wants to outsource jobs, eliminate seniority and perhaps dissolve the union.

The guild has also started talks with lenders in the event they win the auction. The employees want a three-year contract extension with no layoffs.

Pensions are another concern. The Toll-Haas “stalking horse” bid excludes any responsibility for the pension plan — a stance that drew the attention of the Pension Benefit Guaranty Board, which sent a lawyer to a recent bankruptcy hearing.

Devine, the company spokesman, said bidders are merely standing silent on the pension issue, and denied any intent to dissolve the various unions.

The creditors have until Nov. 16 to submit their expected rival bid, two days before the auction. Outsiders may also bid, but none appear on the horizon. A bankruptcy judge would then confirm the outcome at a scheduled Dec. 4 hearing.

“No matter who prevails, the Guild is prepared to negotiate to reach a fair contract that protects our jobs, our wages, and our standards of living, none of which led to the bankruptcy filing,” the newspaper guild said in a recent bulletin.

Guild officials otherwise declined to comment Wednesday.

The local group’s latest offer would also give creditors half of any profits the company might see in the next five years, to appease creditor concerns they might be getting a steal. However, few are predicting such an industry turnaround.

Chief U.S. District Judge Stephen Raslavich has called the local group’s bid for the Philadelphia newspapers an insider deal, given that two of the three investors — Toll and the Carpenters Union Pension Fund — were part of the 2006 purchase.

The creditors are eager to pursue their credit bid and let the Inquirer and Daily News emerge from bankruptcy “promptly and well positioned for future success,” according to lawyer Fred Hodara.