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Newspaper headlines have skewered money
lenders for dubious decisions that stoked the recession. Now the
financiers are starting to headline newspapers in a new way - as
the owners.


      These newspaper novices are taking control through bankruptcy
proceedings and giving few clues about their turnaround plans.
Their decisions will be crucial because this new age of media
ownership is unfolding at a time that could make or break some of
the largest publications.


      Banks and other financial firms have taken over or are angling
to take charge at dozens of newspapers, including four of the
nation's 15 largest - the Los Angeles Times, Chicago Tribune, the
Star Tribune in Minneapolis and The Philadelphia Inquirer.

      The new owners face huge problems. Newspaper ad revenue, the
industry's main source of income, is on pace to total around $27
billion this year, about $22 billion less than three years ago.
Newspaper circulation is falling faster than ever.

      Finding solutions - such as mining Web sites for more revenue
while newspapers protect what's left of their print franchises -
will likely require a financial commitment that short-term owners
might be reluctant to make, says Fitch Ratings analyst Mike
Simonton. Lenders that take over a company through bankruptcies
typically try to sell their stakes within two to three years.


      But there's another way of looking at this transition: The last
few years have gone so badly that newspapers need to try something
different - and "new blood in the industry" could help, says John
Temple, who was publisher of The Rocky Mountain News in Denver when
its owner, E.W. Scripps Co., closed it in February.


      A common theme in newspaper bankruptcies is that publishers took
on too much debt to pay for acquisitions in better times. Now the
banks that financed those deals are hoping to recoup at least some
of their investments by forgiving or writing off most of the debt -
in exchange for controlling stakes in the publications.

      Instead of trying to engineer a turnaround, the new owners could
just close the newspapers and auction off their assets. But
Simonton doubts that will happen because newspapers don't have a
lot of valuable inventory like retailers that have been liquidated.

      Instead, the bleak market conditions make it more likely that
some newspapers are bound to be owned, even briefly, by bankers
such as JP Morgan Chase & Co. and financial firms such as Angelo,
Gordon & Co., which specializes in buying the debt of distressed
companies.

      So-called "loan-to-own" investors such as Angelo, Gordon at
least have experience taking over companies. Banks don't have much,
because government regulations say banks aren't even supposed to
own pieces of companies. The government makes exceptions when banks
are exchanging debt for stakes in companies that can't repay their
loans - but the banks have to sell those holdings within five
years, unless they get a waiver from regulators.

      It's a situation banks don't want to be in, said Marc Abrams, a
New York lawyer who represented newspaper publisher
Journal-Register Co. while it was in bankruptcy protection this
year. JP Morgan leads a group of banks that now own pieces of the
Journal-Register, whose newspapers include the New Haven Register
in Connecticut and The Oakland Press in Michigan.

      "The first question these banks have is: 'What is my exit
strategy?"' Abrams said. As part of that process, the bankers will
likely try to figure out whether their newspapers have the right
management in place and determine how much more money they're
willing to sink into the industry, Abrams said.


      JP Morgan, which leads a group of lenders including Angelo,
Gordon that could become the Tribune Co.'s new owners, declined to
comment for this story. But in a November interview with The Wall
Street Journal, the executive who oversees JP Morgan's investments
in troubled companies said the bank isn't a hands-on owner. "We
don't necessarily have the time or operational skill-set to insert
ourselves into the strategy of a company," said Patrick Daniello.


      The incoming owners of ailing newspapers are saying little about
how they intend to fix things, leaving it unclear whether they
might expand on the cost-cutting that has already shredded
newsrooms. Besides trimming staffs, some publishers have reduced
wages and reduced the frequency or size of their print editions.


      At the Star Tribune, for instance, Angelo, Gordon and the rest
of the newspaper's new owners are treading carefully. They haven't
named a new publisher, though they have signaled they will rely on
the insights of industry veterans. Two of the newspaper's board
seats are being filled by Gordon Crovitz, former publisher of The
Wall Street Journal, and Michael Reed, CEO of GateHouse Media Inc.,
which owns dozens of small newspapers. The board chairman is
Michael Sweeney, who heads a private equity firm and has no
newspaper experience.


      Brad Patelli, the man overseeing Angelo, Gordon's investments in
newspapers, has turned down interview requests from The Associated
Press and most other media since his firm became one of the
Minneapolis newspaper's owners in a bankruptcy reorganization
completed in September. The ownership group includes Wayzata
Investment Partners, another private equity firm, CIT Bank and
investment bankers Credit Suisse Group. Wayzata, CIT and Credit
Suisse all declined to comment.


      In his only extensive interview during the past three months,
Patelli told the Star Tribune that he envisions holding on to the
Minneapolis newspaper for five to seven years - long enough for it
to work out its problems.


      "It's often difficult being a contrarian," Patelli told the
Star Tribune. "We're certainly going into it with our eyes wide
open."


      At two other newspapers in Angelo, Gordon's sights, The
Philadelphia Inquirer and the Philadelphia Daily News, publisher
Brian Tierney has been fighting to block his publications' lenders
from becoming the new owners.


      He believes the lenders' plans - which would oust him - would be
damaging to the newspapers because they would leave the company
with $85 million to $100 million in debt. But he also says banks
and private equity firms such as Angelo, Gordon would be bad owners
of newspapers because of their secrecy, and because the financiers
are likely to be involved in business and government deals that
probably would be covered by the newspapers they hope to own.


      "I am not saying these are inherently bad guys," says Tierney,
a former public relations executive. "I am just saying newspapers
aren't the right industry for them to be involved in."


      A more optimistic view comes from William Dean Singleton, chief
executive of MediaNews Group Inc., a private company that owns more
than 50 daily newspapers, including The Denver Post and San Jose
Mercury News. Singleton, who relied heavily on their loans to
expand his company, thinks banks could help newspapers by forcing
more mergers that could reduce overhead - by combining production
and sharing newsroom staffs, for example.


      If the cost-cutting includes layoffs, it would threaten the
quality of coverage that already has suffered as publishers
jettisoned thousands of reporters, editors and photographers during
the past few years.


      But Singleton is convinced bankers aren't going to do anything
that would make newspapers any less attractive, because that would
make it more difficult to sell the publications to the next
generation of owners - presuming buyers for newspapers eventually
become more numerous.


      "They didn't want to hold on to debt forever and they aren't
going to want to hold on to the equity forever either," says
Singleton, who also is chairman of The Associated Press. "When
this transition is over, you probably will see newspapers go back
into the hands of people who really want to own them."

Gallery

Business and Economic News

Newspaper headlines have skewered money
lenders for dubious decisions that stoked the recession. Now the
financiers are starting to headline newspapers in a new way - as
the owners.


Bad business deals turn newspaper lenders into owners

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