Sun-Times Media Group: We'll Return to Profitability At A 'Fraction' Of Size

By: Mark Fitzgerald Pleading its case Friday before one of the most influential proxy advisory firms, Sun-Times Media Group (STMG) said it will return to profitability by shrinking to a "fraction" of its current size.

In a presentation to RiskMetrics Group, the parent of the Chicago Sun-Times noted that it had eliminated 16 newspapers in 2008, and said "we're looking at eliminating several more unprofitable publications in 2009."

STMG said it will wring another $50 million of expenses in the next few months, matching a similar cost-cutting exercise earlier this year.

"News companies cannot survive with current business models," the presentation said. "Our plan includes significant restructuring of our organization to deliver content and satisfy customers (readers and advertisers) profitably at a fraction of our size."

STMG is in the midst of a proxy war with Davidson Kempner Capital Management, which wants all but one member of the board of directors to resign, to be replaced by a smaller board including three of its nominees. It is also seeking the ouster of CEO Cyrus Freidheim Jr.

The STMG presentation argues that, in contrast to its specific proposals to return to profitability, Davidson Kempner (DK in the presentation) "has offered no plan at all." STMG said its plan will return the publisher of about 90 papers to become "cash flow neutral" again within the next year or two.

The nominees are not familiar with the Chicago market, where STMG now publishes all its newspapers, and may have conflicts of interest or issues of independence sitting on the board.

Says one slide: "The independence question takes on urgency as DK is a major unsecured creditor with a claim of $203.9 million in the Tribune Co.'s bankruptcy reorganization filing of 12/8/08; Tribune Co.'s Chicago Tribune is the major competitor to the Chicago Sun-Times."

Davidson Kempner made its own presentation to RiskMetrics Thursday, arguing that current leadership has been burning cash at a rate of $20 million per quarter and is on a path towards bankruptcy.

Both presentations can be seen in E&P's business-oriented blog, Fitz & Jen blog.