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August 29, 2014

Smelling New Value in Old Philly

$135 million. 17 hours of pre-auction maneuvering. Almost a dozen hours of auction…after 14 months of bankruptcy. Now that’s a newspaper story about newspapers that we haven’t heard in a long time.

So the Philadelphia Inquirer, Philadelphia Daily News and Philly.com all go back to the lenders, who busted the piggybank well past the unexpected $100 million, to pay $135 million for the properties, five million more than Brian Tierney’s local group. (Good quick interview with Tierney, here)

With Tierney’s group, backed by big Philly names like Haas, Perelman, Toll,  we know what we’d have gotten if they had retained control: a fierce localism, trademark continued Philly toughness in the newsroom, almost a throwback approach to civic-centered newspapering, an uncertain embrace of the digital age.

With the lenders group — Angelo Gordon & Co., Citizens Bank and the CIT Group, which had lost a court battle to use its owed $300 million in debt in the sale bid — we know somewhat less. Yet, we know some.

First, we know, courtesy of this fascinating bidding that the smart money believes there’s lots of residual value in these storied Philly brands. Sure, it’s one thing to buy assets at a dime on the dollar, as Angelo Gordon has done in bets on a number of news properties across the country. It’s another to swallow one debt loss, and double down at this dollar level.

So what is it that Angelo Gordon — involved with newspaper properties far and wide, including  Freedom Communications, Tribune, the Star Tribune and CanWest — sees in Philly and elsewhere. Talks with a number of people close to the company indicate these are the attractions:

  • The brand. Newspaper brands, it believes, have inherent value, a value which has been under-leveraged for the digital age. Tap that brand value — reader recognition and trust, advertiser familiarity — anew and you can find growth, it believes. Expect to see investments in technology, in social media and in mobile publishing.
  • The high level of local online traffic. Sure traffic hasn’t created the $30 CPMs that print publishers would like to see. In more than 60% of the top 50 markets, though, newspaper brands lead local news reading. Again, here, Angelo Gordon believes this advantage, built up over 15 years of Internet slogging, can be leveraged.
  • The ability to create new value in the short term with the infusion of new leadership and new thinking. This is the key that unlocks the value Angelo Gordon believes is hidden in the encrusted legacies of these print properties. Of course, that’s in its private equity DNA: bring in people with new eyes, people who aren’t burdened with too much custom and habit.
  • The age-old sense, sometimes right, recently wrong in the newspaper business, that they’re buying at the bottom, getting good assets cheap. Maybe, maybe not. Remember, Brian Tierney’s group thought they were buying at the bottom when they paid more than three times today’s price, $515 million in 2006. Maybe, Angelo Gordon is catching the early wave of big economic recovery. Wiped of most debt, these local news companies could be poised for growth.

If new eyes are essential, take a look at the kinds of people involved with other Angelo Gordon-inflected news operations. It’s a mix of newspaper types and others; the company is clearly trying to find the right formula of industry knowledge and outsider perspective. For instance at Freedom, look at the distinctly non-newspaper cast of the board: Board members include: Jim Dunning, a media investor who worked at Rolling Stone and ran Ziff Davis Publishing Co.;  Ross Levinsohn, founding and managing director of Fuse Capital in Palo Alto; and Sean P. Moriarty, entrepreneur in residence at Menlo Park venture capital firm Mayfield Fund. At the Star Tribune, it’s more newspaper-related, with the company havingreplaced the board with a mix of financial and newspaper people: Gordon Crovitz, former WSJ publisher, Michael Sweeney, managing partner of the Minneapolis private equity firm of Goldner Hawn Johnson & Morrison; former banker and investor William Farley of Minneapolis, principal of Livingston Capital; and Michael Reed, head of GateHouse Media Inc.

Big questions, as we roll out of the Philly auction:

  • How painful will the labor cuts be at the papers? The winning group had proposed asking employees to reapply, but dropped that demand during the auction. That proposal, though dropped, is a clear sign to Philly’s numerous unions that tough negotiations are ahead, and that more cuts are inevitable.
  • What will Bob Hall’s role be? Hall, former publisher of the papers during Knight Ridder years, had emerged as the anti-Tierney. What will his new role be? In dealing with Tierney, Philly’s unions had gotten to know the devil they were dealing with. Now, will they be back to dealing with the devil they used to deal with? Hall’s a savvy guy, and has learned from his years outside the business. Again here, it’s that mix of newspaper vet smarts and fresh, new eyes that will be one to watch.
  • What about the Daily News? The feisty, soul-of-Philly paper just won a Pulitzer for investigative reporting (for Barbara Laker’s and Wendy Ruderman’s  “Tainted Justice” series). The Daily News is yin to the Inquirer’s yang. Keeping it in business alongside the bigger Inquirer has long had a reader — and business — rationale.  Will the new owners see that and figure out how to carry it forward into the digital age?

Much more here to come. For the moment, let’s enjoy a real newspaper moment, fleeting as they are these days.

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