By: Maryclaire Dale, Associated Press writer
Secured lenders won a bankruptcy auction for Philadelphia’s two largest newspapers with a $105 million cash bid.
Their offers tops a $85 million bid from philanthropist Raymond Perelman for The Philadelphia Inquirer and Philadelphia Daily News.
Creditors plan to cut costs by 13 percent across the board, partly by slashing newsroom salaries 6 percent.
But they have pledged to continue publishing both newspapers and hold off on any newsroom layoffs for one year.
The 93-year-old Perelman, a city native who said he wanted to preserve the integrity of the papers, said Thursday that his offer was final.
A group of local investors paid $515 million for the company in 2006 but are selling it to escape bankruptcy protection.
Creditors had won a previous auction but failed to close on the deal.
Philanthropist Raymond Perelman has increased his cash bid to $85 million for The Philadelphia Inquirer and Daily News.
That’s still $20 million less than the $105 million opening bid posted by creditors.
However, the seller could potentially deem Perelman’s bid a better offer for the company based on non-cash terms involved in the deal. Perelman’s opening bid was $50 million.
The two sides are considering their next moves in the bankruptcy court auction.
The creditors won a spring auction with a $139 million deal that included $105 million in cash. But creditors failed to close on that sale, prompting the need for Thursday’s auction.
The company is being auctioned off by local investors who bought it for $515 million in 2006 and filed for bankruptcy in 2009.
A bankruptcy court showdown looms Thursday as philanthropist Raymond Perelman competes with lenders at an auction for Philadelphia’s two largest newspapers.
The 93-year-old Perelman says he hopes to protect the integrity of The Philadelphia Inquirer and Philadelphia Daily News by keeping them in local hands.
The creditors are led by hedge funds and banks trying to recoup some of their investment. The group includes Angelo Gordon, which owns stakes in newspapers in Chicago, Los Angeles and other U.S. cities.
The two parties are the only players to submit minimum $50 million bids by Wednesday’s deadline. The auction is set to start Thursday morning.
Creditors won an earlier auction for $139 million, but failed to close over a contract dispute with unionized drivers.
Philanthropist Raymond Perelman has mounted a solo bid of at least $50 million as he fights creditors for control of Philadelphia’s two largest newspapers.
The 93-year-old Perelman called The Philadelphia Inquirer and Philadelphia Daily News iconic city institutions that should remain in local hands.
“I have a strong interest in protecting the integrity of the newspaper and in the continued employment of as many employees (as possible),” Perelman told The Associated Press on Wednesday. “How can you have a city without a newspaper?”
The son of Lithuanian immigrants, Perelman made his money buying and selling dozens of business over his lifetime, an art passed down to his son, billionaire Revlon Chairman Ronald Perelman. Together, they pledged $27 million toward a local group’s losing bid for the newspapers this spring.
Creditors led by the hedge fund Alden Global Capital won the April auction with a $139 million bid, but failed to close the deal on time. That prompted the need for a second auction Thursday.
Perelman and the creditors submitted the only two bids, company lawyer Larry McMichael said.
Ronald Perelman ranks 23rd on Forbes’ 2009 list of wealthy Americans, with a fortune estimated at $10 billion. But none of that money will go toward his father’s latest play for his hometown newspaper company.
“Ronnie has a genuine interest in it,” Raymond Perelman told the AP. “But the money is mine.”
He acknowledged the industry’s tailspin in recent years, which pushed down the sales price of Philadelphia Newspapers from $515 million in 2006 to $139 million in April and perhaps far less now.
“Everyone thinks you’re nuts in trying to buy a newspaper,” Perelman said. “It’s not my goal to think I’m going to do great things with (the company), but I want to keep it here. It’s well reported. They try to keep the politicians straight.”
Fred Hodara, a lead lawyer for the creditors, did not immediately return calls for comment Wednesday about their bid. He recently said the economics of the deal have changed this time, making the property worth far less.
The company is now being sold “as is,” without the escape clause that allowed creditors to walk away when they failed to negotiate labor contracts with all 15 unions. They had sought to cut costs by 13 percent across the board. Newsroom employees and others agreed to 6 percent salary cuts. But delivery drivers balked, irate over proposed changes to their Teamsters pension fund.
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 investors mired in $400 million in debt from the 2006 purchase. They filed for Chapter 11 bankruptcy in February 2009.
Raslavich agreed Wednesday to open Thursday’s auction to the press, but not the public.
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. The lenders group also includes the bank Credit Suisse.
“I don’t know what their interest is,” said Perelman, a Philadelphia native who lives with his wife Ruth in a penthouse apartment on posh Rittenhouse Square.
The Perelman name adorns numerous buildings and philanthropic ventures across the city. The couple gave $15 million for an annex to the Philadelphia Museum of Art, where he has long served on the board, and $25 million for an outpatient medical center at The Hospital of the University of Pennsylvania.
“All my success has come in the city of Philadelphia,” Perelman said. “This is something I want to do.”