Creditors again prevail in auction of Philadelphia newspapers

Philadelphia Media Network CEO Greg Osberg (left) and Fred Hodara, lead attorney for the creditors, leave the newspaper auction yesterday.
Philadelphia Media Network CEO Greg Osberg (left) and Fred Hodara, lead attorney for the creditors, leave the newspaper auction yesterday.
Posted: September 24, 2010

The senior creditors holding most of the debt in the company that owns the Daily News and Inquirer again won ownership of the company at an auction yesterday.

One big question remains: Will the Teamsters union sign a contract with the creditors group, or is there potential for a strike?

Either way, the sale of the papers and their Philly.com website will close this time, Chief U.S. Bankruptcy Judge Stephen Raslavich, who has presided over the parent company's effort to get out of bankruptcy, has ordered.

The two bidders yesterday were the creditors, which won the first bid in April, and a group led by Raymond G. Perelman, a 93-year-old Philadelphia businessman and philanthropist, who was joined in his bid by the Carpenters Union pension fund.

Yesterday's three-hour session in Raslavich's Center City courtroom - during which the groups spent most of their time in caucuses or in private meetings with the judge - ended with basically the same result as the first auction five months ago in New York.

The creditors started off with the same cash bid they ended with at the April auction - $105 million.

The Perelman group put up an initial bid of $50 million, then upped it to $85 million - its last and final bid.

The winning $105 million bid by the creditors - a coalition of 16 hedge funds and other investment firms, led by Angelo, Gordon & Co., Credit Suisse and Alden Global Capital - was not a surprise.

Greg Osberg, the designated chief executive of the new company, called Philadelphia Media Network, and Fred Hodara, lead attorney for the creditors, assured reporters afterward that the bargaining agreements previously reached with 14 of the company's 15 unions will essentially remain the same.

"As part of the closing of this transaction, the purchaser will stand by" the agreements already negotiated, Hodara said.

Once the sale closes, the Newspaper Guild, the largest of the unions, representing reporters, editors and advertising staff, will face an immediate 2 percent pay cut and 10 unpaid furlough days next year.

The initial deal, from April, was contingent on the creditors' reaching contracts with all 15 unions. Over the past two months, 14 of the unions agreed to various concession packages, but Teamsters Local 628, representing delivery-truck drivers, voted twice to reject its contract proposals, determined to keep its existing, defined-benefit pension.

For yesterday's auction, the judge mandated that the winner close the sale by mid-October - regardless of whether agreements are reached with the unions.

This now gives the creditors more power to impose their own working terms and conditions on the Teamsters if they continue to balk on the pension issue.

If the creditors for some reason don't close, they would lose a hefty cash deposit handed over as a down payment, and the sale would go to the backup bidder, the Perelman group.

But that doesn't appear likely to happen. "There's no way this time the investors won't close," Hodara said after the auction.

Hodara said his group plans today to contact John Laigaie, president of the local Teamsters. Funding of the Teamsters' pension was the stumbling block in the earlier negotiation.

"We will not treat one union differently on the issue of the pension," Hodara told reporters.

Philadelphia Media Network has already indicated it is not contributing to the pensions of any of the other unions.

If an agreement is not reached with the Teamsters, "all of our options are open," Hodara said.

Neither Hodara nor Osberg, a former Newsweek executive, would talk about what those options might be.

Reached by phone yesterday afternoon, Laigaie said, "We're prepared to resume bargaining in good faith."

Asked if the Teamsters would strike if they aren't happy about the pension outcome, he said: "I won't rule out anything. We all have options."

Perelman seemed content to be the backup bidder. "It wasn't like winning the Masters," he said after the auction. "These things happen. Life goes on."

Raslavich will hold a confirmation hearing on the auction in his courtroom at 1:30 p.m. Thursday, during which he is expected to set a closing date.

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