Senior Lenders Buy Philly Newspapers, Cuts Expected

The Philadelphia Inquirer

The Philadelphia Inquirer and Philadelphia Daily News were both acquired by their creditors for $139 million Thursday, apparently concluding a drawn-out and contentious bankruptcy process that saw creditors battling management for control of the company.

But there isn't much good news to go around, as further cuts are likely, according to former publisher Robert Hall. The creditors have appointed him to run the company.

In the end, the auction pitted the creditors -- led by Angelo Gordon & Co. and Credit Suisse Group, with support from Alden Global Capital -- against a new group of local investors, including Revlon chairman Ronald O. Perelman and his father, Philadelphia philanthropist Raymond Perelman, and another bidder, Vancouver-based Stern Partners.

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The sale is something of a victory for the newspapers' old management, led by Philadelphia-area ad and PR mogul Brian Tierney, who argued that Philadelphia Newspapers LLC's creditors should be required to bid for the company with cash, as opposed to their IOUs.

The sale is an especially positive outcome because the $139 million price tag was more than the $100 million or less that most industry observers expected. It beat out a rival $129 million offered by Philadelphia-area philanthropists, including the Perelmans, who wanted to keep the papers under local control.

At the same time, the price is undeniable evidence of the precipitous decline of the newspaper business over the last couple of years. In June 2006, a consortium of Philadelphia-area investors led by Tierney bought the newspapers for $560 million, so the new sale price represents a 75% discount over just four years. (The creditors also carry $318 million in debt.)

More cuts are likely coming, as it was disclosed that the creditors have only guaranteed to keep half the company's current workforce of 4,500 employees. Hall, the company's new boss, admitted that more layoffs are probable, but said the company has no plans to close either newspaper.

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