Bankrupt Brown Publishing Wants to Sell its Assets to ? Brown Media

In its latest bankruptcy court filing, Cincinnati-based Brown Publishing Co., which listed debts of $104.6 million when it filed for Chapter 11 protection, is proposing to sell all its assets to a newly formed company owned by Brown Publishing CEO Roy Brown and two other top executives of the newspaper chain.

The new company, Brown Media, is offering to buy the assets, including 18 dailies and two dozen paid weeklies, for $15.3 million.

Brown Media was incorporated on March 26, according to the filing. It is 100% owned by Roy Brown, Joel Dempsey, who is Brown Publishing’s vice president and general counsel, and Joseph Ellingham, Brown Publishing’s CFO.

“Because of the relationship of Brown Media’s equityholders to the Debtors,  Thomas Carlson, a restructuring professional formerly with Jefferies & Co. who has no  connection to the Debtors or any of their insiders, has been appointed a member of the Debtors’  boards of directors and has been given sole responsibility to negotiate the terms of a sale of the  Debtors’ assets and to make all decisions regarding the potential sale of the Debtors’ assets,” the filing states.

Last year, a California investment group with a minority stake in Brown Publishing alleged in a lawsuit filed in an Ohio county court that the chain shifted its newspapers and other assets to shell companies and was preparing a bankruptcy filing -- all with the aim of keeping the firm from collecting at least $9 million under a stock warrant agreement.

Brown Publishing, that lawsuit claimed, "initiated a scheme of trying to move assets between shell companies in order to avoid contractual and fiduciary duties to Windjammer."

Windjammer alleges that without its knowledge, Brown Publishing created a new limited liability company called Business Publications, and that on March 20, again without notice to Windjammer, Brown Publishing's board of directors approved a "sale" of all the company's assets to Business Publications. Other shareholders were aware of the transfer, and approved a bankruptcy filing, according to the lawsuit, which is still making its way through court.

In its bankruptcy court filing, Brown Publishing said it had been trying without success to sell its assets for nearly two years. Broker Sam B. Mitchell contacted 88 potential purchasers, of whom 17 signed non-disclosure agreements to investigate the sale.

The filing said only two expressed any interest in buying the assets. One “would have involved the purchase of only a few of the debtor’s community newspapers,” the court papers say. The other did not extend a formal offer to buy, and in any case was less than the $15.3 million offer  by the newly created Brown Media entity, the filing states. Neither party is identified in the filing.

“After marketing the assets, the debtors have  decided that selling the assets to Brown Media represents the best, indeed the only, opportunity to maximize the value of those assets,” the filing states.

Brown Publishing says in the court papers that Roy Brown and Dempsey “did not participate in or exert any influence over the negotiations” of terms of the auction process. “Furthermore, the debtors are not aware of any information that  would suggest that Brown Media has engaged in any collusive conduct of the kind prohibited by  section 363(n) of the Bankruptcy Code,” the court filing states.

CEO Roy Brown did not immediately return a message seeking comment on the filing.