Source Interlink Enters Chapter 11, Goes Private

car magsSource Interlink, a magazine publisher and wholesaler, is going private in a deal that will relieve it of about $1 billion in debt and provide $100 million to fund continuing operations.

The transaction to take the company private is being implemented under a Chapter 11 reorganization plan, which affords companies bankruptcy protection in negotiations with creditors.

The moves to enter Chapter 11 bankruptcy protection and take the company private are the latest fallout from the high-profile face-off between magazine wholesalers and magazine publishers, which began in mid-January. Squeezed by the economic downturn, Source teamed up with another big wholesaler, Anderson News, to demand an additional seven cents per copy for delivery of their magazines from big publishers like Time Inc. and American Media, claiming they would go bankrupt without a fee hike.

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The magazine publishers refused, and on Feb. 7, Anderson News suspended business operations; rumors were rife that Source would follow it. However, Source, which also publishes Motor Trend, Automobile and Hot Rod magazines, appears to be committed to staying in the magazine wholesale business.

Shortly after publishers rejected the fee increase, Source filed suit against publishers and competing wholesalers in the U.S. District Court in Manhattan for cutting off its supply of various titles, including People and Sports Illustrated. Source accused Time Inc., American Media, Bauer Publishing and Hachette Filipacchi of colluding with rival wholesalers Hudson and News Group to drive it out of business, violating antitrust and anti-monopoly laws. The case was settled out of court on Feb. 18.

The dispute and subsequent decision by two major wholesalers to leave the business disrupted delivery of magazines to some of the nation's biggest retail chains, including Wal-Mart, which was temporarily without issues of Time and Sports Illustrated, among other titles. The interruption was especially ill-timed, coming amid a long-term slump in magazine newsstand sales.

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