Denver Post owner plans bankruptcy filing
January 18, 2010
DENVER – The holding company for MediaNews Group Inc. newspapers, including The Denver Post and San Jose Mercury News, says it plans to file for bankruptcy protection.
Affiliated Media Inc. said Friday it would file a “prepackaged” plan already approved by lenders, which should allow it to emerge from bankruptcy more quickly.
It would be at least the 13th bankruptcy filing by a U.S. newspaper publisher in the past 13 months. The owners of dozens of newspapers have been pushed into bankruptcy protection as the recession and competition from the Internet have sapped advertising revenue.
Affiliated Media’s Chapter 11 bankruptcy filing illustrates the uncertainty facing major newspapers publishers as their main source of income – print advertising – has plunged during the past four years. Since 2005, the industry’s annual ad sales have dropped by more than $20 billion, a decline of about 40 percent, based on figures from the Newspaper Association of America.
MediaNews’ management and newspaper operations, employees and vendors won’t be affected by the holding company’s restructuring, MediaNews Group Chairman and CEO William Dean Singleton said. He is the chairman of The Associated Press board of directors.
A date for the filing hasn’t been announced, but the company said it would be in the near future. The reorganization plan was expected to be filed in federal bankruptcy court in Delaware.
Under the plan, company debt would fall from about $930 million to $165 million. Senior lenders would swap debt for stock, the company said. The group of 116 lenders led by Bank of America would hold a majority of stock but not voting control.
Management led by Singleton would retain 20 percent of the company through stock and warrants. Singleton and company President Joseph J. Lodovic IV will own all class A shares, allowing them to choose a majority of the seven-member board of directors. Other stockholders will own class B and C shares.
Singleton said the company has enough cash to fund its operations.
The Hearst Corp., and the family of MediaNews co-founder Richard Scudder are giving up interests in MediaNews, according to a person who had knowledge of the plan but spoke on condition of anonymity because he did not want to discuss the plan publicly.
Singleton and Scudder, a 1935 Princeton University graduate from New Jersey, founded MediaNews in 1985. The two bought the Gloucester County Times in New Jersey in 1983 and formed MediaNews two years later. The company now owns 54 daily newspapers, including St. Paul Pioneer Press, as well as more than 100 non-daily newspapers, Web sites, television and radio broadcasters.
Hearst and MediaNews were involved in a complicated deal to acquire The Monterey County Herald and St. Paul Pioneer Press from McClatchy Co. in 2006. Hearst invested $317.3 million in MediaNews, which then bought the two newspapers and the Torrance Daily Breeze from Hearst.
A spokesman for Hearst declined to comment Friday.
Publishers are hoping the slump will ease this year as the economy recovers from the worst recession in 70 years. But newspapers still must figure out how to support their operations as more readers and advertisers migrate to the Internet, where ads sell for dramatically less, many news articles are free, and the competition is much greater.
“They don’t know how much advertising is going to come back to them” as the economy bounces back, said newspaper analyst Ken Doctor of Outsell Inc.
Mass layoffs and other cost-cutting efforts have helped keep most publishers afloat, but those loaded down with debt like Affiliated Media can’t afford to shoulder the financial burdens that they took on during better times.
“This is the new reality,” Doctor said. “Newspapers are starting to feel more stable than they did last year. But is this a plateau or just another ledge that they are standing on now?”
Newspapers’ advertising and subscription revenues have been hurt with the rise of online sites that let people read news and advertise for free online. Singleton said Affiliated Media’s restructuring would give the company “breathing space” to create a new business model for media.
“We who actually work in the newspaper business have a direct interest in keeping newspapers healthy. But we also can see that the communities we serve rely on newspapers, not only to keep everyone informed, and to check government and corporate abuse, but also to provide a cohesiveness that our society very much needs. … Yet many of our citizens now take it for granted, and forget how precious it really is,” Singleton said in a letter to employees.
Chapter 11 bankruptcy protection frees a company from the threat of creditors’ lawsuits while it reorganizes its finances. The debtor’s reorganization plan must be accepted by a majority of its creditors. Unless the court rules otherwise, the debtor remains in control of the business and its assets.