Philly newspapers go on auction block Tuesday amid bankruptcy dispute between owners, lenders

Philly newspapers go on auction block next week

PHILADELPHIA — Philadelphia’s two main daily newspapers go on the auction block next week as the publications’ current owners and their creditors remain locked in a bitter dispute for control after more than a year in bankruptcy protection.

The Philadelphia Inquirer and the Philadelphia Daily News could stay in local hands and shed about $300 million in debt if housing executive Bruce Toll and other local investors prevail at Tuesday’s closed-door auction in New York. That group said Wednesday that it will revise its initial bid before Friday’s deadline.

A group of creditors, banks and hedge funds has also pledged to make a strong cash bid to take control. That group includes the distressed-asset firm Angelo, Gordon & Co., which owns stakes in several U.S. newspapers.

Philadelphia Newspapers, which owns both newspapers and the Philly.com website, also expects sealed bids from several other parties that have examined the books, said Larry McMichael, a lawyer for the company.

The auction — part of the company’s bankruptcy reorganization plan — is rare among media companies that have sought bankruptcy protection in recent years. More often, creditors or new investors have assumed control through negotiated deals with debt-ridden owners.

Philadelphia Newspapers filed for bankruptcy protection in February 2009 after negotiations with creditors collapsed.

The current owners, including Toll and Publisher Brian Tierney, had borrowed about $400 million to buy the company in 2006, when the industry’s outlook was far more stable. Advertising revenue has since fallen across the industry, and the company is now estimated to be worth $100 million or less, both sides have said during court proceedings.

According to McMichael, the company hoped an auction would yield an “intentional owner” rather than someone simply looking to buy a company on the cheap now in order to quickly sell it later.

“The best way to preserve the institution is for it to fall into the hands of someone who really wants to own it, rather than someone who doesn’t like today’s price and wants to hold it a few years and flip it,” he said.

Company officials also say the auction will test the fair market value of the company and thereby return the greatest amount possible to lenders.

The newspapers’ top-tier, secured creditors, however, have argued that the auction was designed as an inside deal to keep Toll and Tierney in control. Although Tierney is not part of the new ownership group, he could remain in management.

The local owners had entered a starting bid — known as a “stalking horse,” because it is endorsed by the company — of about $30 million in cash, plus a $17 million line of credit and the newspaper building, worth about $30 million.

But this week they advised the company of plans to enter a revised bid by Friday’s deadline, company spokesman Jay Devine said Wednesday. He said he did not know whether the bid would be higher or lower.

Federal courts have already ruled that the company can deny creditors the right to bid with the money owed them, which the creditors had argued is a traditional right in bankruptcy auctions. That means they have to raise new money to mount a cash bid for the newspapers, rather than use some of the $300 million they are owed by the company.

Both sides have pledged to preserve both the broadsheet Inquirer and tabloid Daily News, the latter of which won a Pulitzer Price for investigative reporting this month.

The Daily News reported this week that Stern Partners, a Vancouver-based investment firm, is among the potential bidders. The company did not return a message left Wednesday.

Several lawyers for the creditors did not immediately return phone messages Wednesday.