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April 29, 2017

Tribune, the Register Auction and DOJ’s Scarlet Letter

For those who have been following the ongoing tragicomedy of California’s dying newspaper industry, today, March 16, marks a climax.

And as with all amazing stories, the moments leading up to that climax have made it a nail-biter.

The real action is mundane enough: Today is the day that final bids arrive at the office of a bankruptcy attorney representing the Orange County Register and the Riverside Press-Enterprise. The flailing newspaper company is seen as a potential linchpin in the survival strategies of two bidders, both themselves serially troubled in recent years: Tribune Publishing, publisher of The Los Angeles Times, Chicago Tribune and Baltimore Sun, and Digital First Media, publisher of more than 100 newspapers from Brattleboro, Vt. to San Francisco including the St. Paul Pioneer Press, Bay Area News and the Denver Post.

Tribune, previously the odds-on favorite, recently convulsed in a leadership coup brought on as a direct result of its energetic efforts to win the bidding (POLITICO: “Top Tribune executives said to be on the way out in house-cleaning”); but in just the last 48 hours an intervention by the Feds looks like it has flipped the odds against Tribune.

First published at Politico Media

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On Monday, the Justice Department’s Anti-Trust Division’s March 14-dated letter arrived, via email, in the offices of the bankrupt Freedom Communications offices.

The DOJ letter itself seemed a bolt out of the legal blue, of curious provenance and dagger-like timing, aimed at the heart of Tribune Publishing’s bid to buy the papers.

Tribune had positioned itself, for more than a year, to buy the two papers, and cinch up the biggest swath of daily newspaper monopoly in the country (“Trash-talking in the O.C., with two newspapers hanging in the balance”). Along the way, it had considered the possibility of an anti-trust challenge – and then largely dismissed it as unlikely to come forward or be successful, sources tell me.

The DOJ challenge, though, minced no words: “We wish to inform you that, based on our review to date, the (antitrust) division believes the acquisition of the Freedom assets by Tribune poses a serious risk of harming newspaper readers and advertisers in Orange County and Riverside County,” wrote William Baer, Assistant Attorney General in charge of the Antitrust Division. Baer sent the letter to Alan Friedman, Freedom’s bankruptcy attorney. DOJ seems to have reached the conclusion that the Tribune bid violates the law, and pledges to challenge it: “If Freedom selects Tribune as its purchaser, the division will exercise its antitrust law enforcement responsibilities to ensure that the transaction does not deprive newspaper readers and advertisers in these areas of the benefits of competition.” (Full letter, here)

Arriving just 48 hours ahead of the deadline for final bidding for the newspapers and attendant real estate, the letter seems to greatly minimize the chances of Tribune Publishing winning – and keeping – the papers.

In fact, all eyes will be on the door of the Freedom attorney’s office today, as bidders arrive to put in their markers. Will Tribune Publishing even show up to further contest the leading, “stalking horse” bid of Digital First Media?

Within the last week, DFM, which owns the Los Angeles Newspaper Group, bid $45.5 million for the papers and real estate, to take the lead position in the auction. DFM, with the aggressive bid, surprised its rivals, Tribune and Freedom’s own management group, led by Freedom CEO Rich Mirman.

How the story unfurls from here is anyone’s guess. On Monday, a court hearing has been set to approve the winning bid; the bankruptcy court has intended to close the sale on March 31, as a gaggle of secured and unsecured creditors salve their wounded pocketbooks with whatever funds the sale generates and the bankruptcy court allocates.

Tribune had already contested DFM’s winning stalking horse bid, with a hearing on that matter scheduled for as early as Monday as well. Now, the company must decide – in light of the anti-trust letter – whether to go forward. The letter doesn’t prevent it from bidding, but

creates longer odds on it first winning the auction, and, if it does, then successfully contesting the Department of Justice action.

As Register reporter Jon Lansner pointed out Tuesday, “Court papers detailing the Freedom bidding procedures say the winning bid would reflect ‘the risks and timing associated with consummating such bid’ as well as ‘the ability to obtain appropriate regulatory approvals.’”

In other words, Tribune’s bid – even if financially better than DFM’s or the Freedom group’s – is much riskier. The whole thrust of the bankruptcy auction is to settle claims, as finances allow, and close the book permanently on the serial errors of Freedom’s former management.

For Michael Ferro and Jack Griffin, the latest development comes wrapped in great irony. Griffin, needing funding to buy the California newspapers, had turned to the only source of it he could find, Ferro. Ferro plunked down $44 million for a 16% stake, and then promptly ousted Griffin and much of his top management (“CEO Jack Griffin is out at Tribune”).

With the chances of that $44 million being used to actually buy the papers greatly diminished, Griffin’s (and TPUB’s) risky move now seems doubly problematic. In effect, the former CEO seems to have made a deal that he didn’t need to consummate – and paid for it with his job, though he did take home a $2 million severance.

Digital First Media, now an odds-on suitor for the papers, proclaims its love of L.A. newspapers while simultaneously making deep cuts to its large newsrooms in the Bay Area and losing its respected top editor in Denver.

Though DFM, and its Los Angeles News Group, run very lean news operations, the number of local news reporters it would employ – including its LANG, San Bernardino Daily Bulletin, Register and Press-Enterprise properties – would begin to rival the local news reporting strength of Tribune’s Los Angeles Times.

At the same time, we must note that the number of employed daily journalists in southern California (and nationally) is indeed fluid. While Tribunecut more than 80 L.A. Times journalists in November, DFM’s cuts are more recent. Just Tuesday, Greg Moore, editor of DFM’s Denver Post, resigned, in part due to serial cuts imposed on the Post by DFM owner Alden Global Capital. The Bay Area News Group (BANG, LANG’s Northern California cousin) just moved to eliminate between 33 and 43 newsroom jobs, as it reshuffles area paper nameplates, press routines and copydesk positions. That will amount to as much as 20% of existing BANG journalistic staff, though a small number of new staffers may be added back.

Clearly, then, the surge of interest in buying the Register and Press-Enterprise can’t be interpreted as a vote of confidence in newspaper futures. Simply, the interest centers around cost-savings. That’s what’s driven both Tribune’s interest and DFM’s. Consolidation is the name of the game today.

While that buying motive remains clear, the impetus behind the Department of Justice letter remains less clear. The DOJ is alleging that both advertisers (in the rates they would be charged) and the readers (presumably in their narrowed choice of news matter) would be harmed by Tribune’s domination of a market encompassing about 20 million people, from San Diego to northern L.A. County. Fair point, and one worthy of good debate in this, the digital age.

But, the immediate question: How did DOJ come to send that letter, and to send it with its maximum-effect, two day-before-auction timing? Who, we can ask, adding to the screenplay-worthy series of Southern California newspapering events, may have had the juice to prompt DOJ to squeeze Tribune at this opportune time?

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