Posted on 06/30/2020 10:01:14 AM PDT by Red Badger
Tribune and McClatchy are both approaching critical deadlines that could lead to mergers, divisions or even the first big nonprofit newspaper chain in the United States.
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The next 48 hours may decide the fate of two of Americas largest newspaper chains that collectively serve almost a fifth of all American local newspaper readers.
And what happens in those hours could prompt a wave of other moves across the rest of the industry.
The dates June 30 and July 1 have called out from the calendar for a while now. On Tuesday, Tribune Publishing will reach the end of two standstill periods. Tribunes two major shareholders Alden Global Capital, with 33 percent of the companys shares, and Los Angeles Times owner Patrick Soon-Shiong, with 25 percent had promised not to actively buy or sell any shares until June 30.
When that restriction ends, you can expect Tribunes uneasy status quo to come to an end quickly. After a chaotic decade, the chain had been briefly semi-stable after Michael Ferros departure from management. But then Alden bought up those shares in November, and since then Tribune has given Alden two board seats, imposed Alden-style cuts, and created Alden-style management chaos.
Then, on Wednesday, final bids for McClatchys 30 newspapers are due, as the countrys second-largest chain prepares to wind toward some exit from bankruptcy.
This is the mid-year witching hour for the U.S. daily press, another stirring of the consolidation pot, and another stage in the transformation of newspapers from civic assets to financial instruments. These two big and potentially interconnected dramas will determine the futures of the No. 2 and No. 3 local publishers in the country.
The possible combinations and recombinations are numerous. What we know, from a variety of sources, is still piecemeal, with the future of McClatchys 30 titles the most uncertain piece.
Heres one big new possibility to look for: a new potential buyer of McClatchy intent on pulling its newspapers from the clutches of hedge funds and setting up the countrys first major nonprofit newspaper chain. More on that below.
Part of the uncertainty is that the options that seemed possible in December are markedly different now. The one-word reason: coronavirus.
The months of COVID-19 shutdown have only deepened the business issues afflicting the daily newspaper business. Plans that felt like climbable mountains in December now look positively Himalayan. Everyones forecasts and valuations have gotten big haircuts. (And some look like they were done in quarantine, with clippers and a mirror.)
With a new wave of infections rampaging across the country, newspaper CEOs now look at another six to 12 months of potential downturn. Small businesses struggles will likely leave ad revenues down 35 to 40 percent in 2020, according to Ken Harding, head of FTI Consultings respected media practice.
The biggest data point from FTIs June 1 update: We project an unrecovered advertising revenue loss between 17 percent and 28 percent as a result of COVID-19 by Q4 2021.
Those numbers that projection of extended revenue pain are driving everyones estimations of newspaper company value, which drive their plans for bids and M&A. The McClatchy drama
Think of this weeks McClatchy action as the beginning of what may become a two-act drama.
Those final bids are due on Wednesday. Then one week later, on July 8, a winner will be announced by the McClatchy board. On July 24, bankruptcy judge Michael E. Wiles will review the decision, and either approve it or not. His legal task: resolving the companys debts as fairly as possible among those owed money.
Finally, theyll be a formal Department of Justice antitrust review, which should be resolved before years end.
In bankruptcy court, wild cards can enter, and one did last week. McClatchys unsecured creditors publicly charged what others had been saying a bit more quietly. They alleged that McClatchys major 2018 debt refinancing with Chatham Asset Management was fraudulent. That refinancing gave Chatham a favorable lien position in bankruptcy; that means Chatham is more likely to be made whole (or more whole) than McClatchys unsecured creditors, including pension claimants, who would likely receive pennies on the dollar. While a lawsuit is possible and could take years, as did some in the Sam Zell/Tribune five-year bankruptcy from hell its more likely therell be a settlement that removes that obstacle from finalizing a sale.
Why might Julys drama be only Act I? Because whoever buys McClatchy could then turn around and merge it with another company or sell off individual McClatchy newspapers, or groups of them. Thats Act II.
Whos playing in each act?
The one known bidder is Chatham currently both McClatchys lead investor and its largest debt holder. Chatham has already put in a stalking-horse bid of around $300 million.
Auctions like these draw all sorts of lookie-loos. Contemplating a bid can be a great opportunity to examine the innards of a company, to compare benchmarks and metrics even if the looker has no intention to buy.
This auction has been no different. As the bidding hour approaches, no one expects more than a handful of bids. Likely one, two, or three maybe, at the outside, four.
Lets categorize the likeliest bidders:
The Insider The Savior The Financial Engineer The Roller-Upper
Chatham is The Insider here. It knows McClatchys books and operations inside out, and its already bid. Its attorneys have said it wouldnt mind being outbid, and that makes sense: As a hedge fund, its in McClatchy for a financial return, not long-term investment or community service. If someone else thinks McClatchy is worth more than they do, theyll happily take their money.
Most intriguing is The Savior.
Many in the news business have looked aghast at the vultures and financial players who increasingly dominate ownership. Theyve wrung their hands. Theyve offered a vision of new, nonprofit-led future for local news, just as hundreds of smaller sites have set up a shop over the last decade. But nearly all of those startups still pale in size, if not dedication, next to even shrunken local dailies.
The McClatchy bankruptcy has hatched a new idea, one thats been talked about for at least a couple of years, but mostly hypothetically: Why not buy one of these big struggling chains and take it nonprofit?
Thats what on the table today. Leaders in the field of nonprofit journalism are deciding over these 48 hours whether or not to make a bid for all of McClatchy, sources tell me. They say they can raise the needed cash of $300 million-plus.
The big question: What then? How would a civic-minded nonprofit approach the tough transformations still ahead for local news, which is still highly dependent on print revenues smack in the middle of the COVID age? In this growing civic-good journalism world, there are many good people with the right motives but very uneven skills to transform beleaguered companies.
Sources say theres a newish player in the mix that is strongly considering a bid to be The Financial Engineer, sources say. And its not one of the usual suspects Fortress Investment Group (Gannetts manager), Apollo Global Management (Gannetts lender), Alden Global Capital (MNGs owner, major investor in Tribune and Lee). Those financial giants have each done their share of damage via unending cuts and only murky business transformation.
Then, there are at least two candidates to be The Roller-Upper. No one is putting down a big bet on one of them placing a bid but no ones betting against the possibility either.
First, consider the last big roll-up: New Gannett. The combination of Old Gannett and GateHouse, finalized in November, created the most dominant daily publisher in U.S. history, serving about a quarter of daily newspaper readers.
Gannett is highly encumbered by debt. The $1.8 billion loan from Apollo it took to do the deal now feels even more uncomfortable given 2020s virus-driven ad decline. It just let go its second-in-command CEO Paul Bascobert, whod been put inside New Gannett by Old Gannett a scheme that simply didnt work. Its also announced an end to at least some of its COVID-related furloughs.
Gannett and, importantly, Apollo could make the case to themselves that further roll-up more scale, more synergies, more cuts would make the companys position more secure over the next few years. Gannett + GateHouse + McClatchy is a combination that would reach about a third of American newspaper households. By the standards of old accounting, thats huge scale. But what is it worth whats its value as a bid in bankruptcy court?
The big question for Gannetts Mike Reed and Apollos Leon Black: Will they stay on the sidelines or get in this game?
Then theres Heath Freeman, the head of Alden. Hes come out of the shadows a bit lately, even giving an interview here and there. His cash-flow-first strategy has worked for him with MNG (f.k.a. MediaNews Group and Digital First Media) and he plainly wants to apply it to as much of the industry as he can.
Of course, Freeman may have his hands full with the weeks other big deadline. On Tuesday, his standstill agreement expires with Tribune. While Alden and Tribune have managed to keep their plans very close to the vest, the wide expectation is that Tribune and MNG will move toward formal merger soon perhaps very soon.
That combination would create a cash-driven newspaper company reaching more than 15 percent of U.S. newspaper readers. Follow-on civic buyers?
Thats just this weeks potential action. How about Act II?
Whoever buys McClatchy whole may move to either merge it with another player (see The Roller-Uppers above) or sell off some of all of its pieces whatevers the best way to maximize its investment. One data point: Apollos and Chathams leaders have a good working relationship, say sources.
Here we could also see the emergence of more civic buyers. The mayors of both Miami (home of McClatchys Herald) and Sacramento (home of McClatchys flagship Bee) have publicly raised calls to support community-oriented buyers. Weve heard such civic calls for several years, in many cities but the question comes down to, as most do, funding.
There the intrigue is beginning to mount. If McClatchys West Coast properties come loose, sources say, philanthropic sources could be tapped for about $20 million within a year, in California (where McClatchy has five titles) and in the state of Washington, where it owns four). Theres also at least one other civically oriented private buyer waiting in the wings if individual properties come into the mark
HAH!
Rather: “This is the mid-year witching hour for the U.S. daily press, another stirring of the consolidation pot, and another stage in the transformation of newspapers from civic assets to one-sided, internationally-owned (Soros-Rockefeller-Gates-Amazon-Google-Chinese-Saudi) global propaganda instruments with NO local input or writing or editorial control! “
We need newspapers, to report about government corruption.
My canary is clutching her pearls looking for her fainting perch; what will she do without those papers to poop on?
Even the news websites are annoying - popup videos (with ponderous music), blockers, paywalls, etc.
Only to have to read anti-American opinion pieces masked with a smattering of content, and no comment sections.
The physical papers are a joke - prices rising and getting thinner and thinner.
I can only imagine their age demographics are deteriorating as well.
It’s an outdated model whose economic model is to be propped up by lib deep pockets.
Today’s newspapers are worse than government corruption.
Non-profit newspaper chain??? I don’t like the sound of that. Sounds like something that would be ripe for money laundering.
The left never ever runs out of money. Especially when it comes to their propaganda outlets.
Its only the conservative media that has to make money. If they don’t get banned first.
The local rag is a Tribune paper. I hope to see it go under real soon. I think the future of leftist rags is to be artificially supported by insane leftists, such as bezos and his washington post rag.
Can a non-profit newspaper be politically partisan like the for-profit newspapers? I would think there might be restrictions.
Oh, please. You know damn well it’s going to be slanted in favor of demonicRATS. George Soros has hundreds of non-profits and they’re all money laundering operations for the demonicRAT Party.
The large news organizations have been compromised for decades. Their primary utility now is to reveal the focus of the Deep State.
And if they become nonprofits you and I are going to be subsidizing them. Should not be allowed to happen.
We need newspapers...........to wrap fish in..................
Name one that does when a democrat is in charge.
“We need newspapers, to report about government corruption.”
At federal, state and local level. That is where smaller local/regional papers could play a part if they chose to.
Yeah, the problem with their profitability is all around their tax burden.
“setting up the countrys first major nonprofit newspaper chain”
I guess that would be an improvement from the standard negative-profit business model.
They preach against Capitalism then cry when it bites them in the A$$..........................
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