MediaNews parent files for Chapter 11 protection
Published: Saturday, January 23, 2010 at 6:01 a.m.
Last Modified: Saturday, January 23, 2010 at 12:58 a.m.
SAN FRANCISCO — The owner of The Denver Post, San Jose Mercury News and 52 other daily newspapers filed for bankruptcy protection Friday, joining the procession of publishers choking on too much debt.
The filing by Affiliated Media Inc., the holding company of MediaNews Group, was expected. The privately held company had said Jan. 15 that it would seek to reorganize its finances in bankruptcy court.
MediaNews, based in Denver, says its newspapers and 8,700 employees won't be affected during the bankruptcy proceedings.
Affiliated Media worked with its major lenders and shareholders to hammer out a plan aimed at shortening the company's stay in federal bankruptcy court in Delaware. Affiliated hopes to emerge from bankruptcy protection within a month or two.
The plan calls for Affiliated Media's debt to fall to $179 million from $930 million, according to a person familiar with some of the additional bankruptcy documents expected to be filed late Friday. This person wasn't authorized to discuss them before they were filed.
In exchange for this $751 million concession, a group of lenders led by Bank of America become the company's majority owners with 88 percent of the stock. The remaining 12 percent goes to MediaNews' management team, which is led by William Dean Singleton, who is also chairman of The Associated Press. The MediaNews executives will receive warrants that eventually could boost their combined stakes to 20 percent.
Heading into the bankruptcy filing, Singleton held a roughly 30 percent stake in Affiliated.
Richard Scudder, who co-founded MediaNews with Singleton in 1985, will relinquish his interests in the company to the lenders.
Singleton will also continue to run MediaNews, signaling the lenders remain confident in him despite the company's recent struggles.
The decision probably stems from Singleton's reputation as a hard-nosed businessman who has never shied away from cutting costs, said Alan Mutter, a former newspaper editor who blogs on the media business.
"Who do we know who can go in and run the hell out of a newspaper and make a buck?" he said. "The only answer is William Dean Singleton."
MediaNews spokesman Seth Faison declined to comment Friday.
Despite MediaNews' troubles, Singleton says all but one of the company's newspapers are profitable. He hasn't identified which one is losing money.
"By aggressively facing the challenges of the newspaper business, we will continue to deliver high-quality journalism and will prepare our newspapers for a promising future," Singleton said in a statement Friday.
Apparently, not even Singleton could figure out a way to deal with all the debt that MediaNews took on to expand into new markets. Like other publishers, Singleton borrowed heavily before the Internet and recent recession began to devour the newspaper's main source of income — advertising.
Last year was particularly hard on big newspapers as the industry's print ad sales plunged by nearly 30 percent. Some of the revenue is expected to return as the economy bounces back, but much of it is expected to remain on the Internet, where many marketers are finding they can generate more sales for less money.
At least 14 U.S. newspaper publishers have now filed for bankruptcy protection in the past 13 months.
"What (Singleton) did was what everyone else did — make acquisitions not knowing that in 18 months they'd see a 30 percent decline in advertising and then run out of options," said newspaper analyst Edward Atorino of Benchmark Co.
Affiliated's annual revenue has fallen by $270 million, or 20 percent, during the past two fiscal years. The erosion pared Affiliated's revenue to $1.06 billion in fiscal 2009, which ended June 30.
Another major newspaper publisher, Hearst Corp., is one of the biggest losers in Affiliated's reorganization.
The plan calls for Hearst to lose the roughly 30 percent stake it held in MediaNews' newspapers outside the San Francisco Bay area.
Hearst got its MediaNews stock as part of 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.
Although the bankruptcy documents don't say it directly, Hearst's holdings clearly weren't worth anywhere close to the $317 million that it paid a few years ago. Affiliated Media estimates the market value of its total enterprise at $190 million to $230 million. The company also said it has $53 million in cash.
As part of the bankruptcy case, Hearst will get warrants that could be converted into MediaNews stock in the future, Faison said.
Hearst spokesman Paul Luthringer declined to comment.