Lenders, Ray Perelman to compete for Philadelphia Inquirer, Daily News at auction Thursday

By Maryclaire Dale, AP
Wednesday, September 22, 2010

Lenders, Perelman bid on newspapers

PHILADELPHIA — A group of banks and hedge funds will compete against philanthropist Raymond Perelman at Thursday’s bankruptcy auction for Philadelphia’s two largest newspapers.

Both parties entered bids and will likely qualify to enter Thursday’s auction for The Philadelphia Inquirer and Philadelphia Daily News, company lawyer Larry McMichael said.

The minimum bid is $50 million.

Creditors led by the hedge fund Alden Global Capital had won an April auction for the media company with a $139 million bid. But they failed to close on the deal this month, citing labor woes with a single holdout union, Teamsters delivery drivers.

Perelman, 93, also took part in the first auction. He and his son, billionaire Revlon Chairman Ronald Perelman, had joined other local investors in pushing the bids past $100 million. Together, they had pledged $27 million in cash and loans.

“We stayed in it as long as we thought made sense,” Perelman said at the time.

Perelman, the son of Lithuanian immigrants who became a takeover specialist, lives with his wife Ruth in a penthouse apartment on Rittenhouse Square in Philadelphia. Their names adorns numerous buildings and philanthropic ventures they have helped fund around the city, including an annex to the Philadelphia Museum of Art, where he has long served on the board.

Perelman was at his suburban office on Wednesday, but did not immediately return calls. He has said he loves both newspapers and the city.

His investors’ group called it quits at the first auction when their bid hit $95 million cash, not counting the $25 million to $35 million in related bankruptcy costs. The creditors’ winning bid was $105 million cash, plus the exit fees.

But it’s far from clear the newspapers will fetch that much Thursday.

Fred Hodara, a lead lawyer for the creditors, has said the economics of this deal make the company worth far less.

The company is being sold “as is,” without the escape clauses previously allowed. That means the winner takes it, whether or not favorable contracts can be negotiated with the 15 labor unions.

Chief U.S. District Judge Stephen Raslavich has complained the company has “languished” in bankruptcy for more than 18 months. The current owners are luxury homebuilder Bruce Toll and other local investors who paid $515 million for the company in 2006 and filed for Chapter 11 bankruptcy in February 2009.

The creditors had sought to cut costs by 13 percent across the board as they prepared to take over. Newsroom employees recently agreed to 6 percent pay cuts. But the drivers balked at changes to their defined-benefit pension plan.

The hedge fund Angelo Gordon, a member of the creditors group, has stakes in newspaper companies in Chicago, Los Angeles, Minneapolis and several other U.S. cities.

Raslavich has ordered that the auction be closed to the press and public, but agreed to reconsider that decision at a Wednesday afternoon hearing requested by Inquirer and Daily News reporters.

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