Palo Alto Weekly

Cover Story - January 22, 2010

Banking on a turnaround

Banks to take ownership of MediaNews while CEO Dean Singleton gives mixed signals on future of MediaNews papers

by Sam Chapman and Jay Thorwaldson

As Bank of America assumes ownership of the second largest newspaper company in the nation, what does the future hold for MediaNews' Bay Area newspapers, including the San Jose Mercury and Palo Alto Daily News?

Carefully orchestrated to hit the news wires at the beginning of a holiday weekend — the time PR experts advise clients to release damaging news in order to minimize coverage — the parent company of the San Jose Mercury News, Palo Alto Daily News and almost every other daily newspaper in the Bay Area except the San Francisco Chronicle announced last Friday afternoon it would file for bankruptcy protection.

Subscribers of the 54 daily newspapers owned by Denver-based and privately held MediaNews had to read their Saturday papers very closely to even notice the announcement, much less understand its significance. Buried in the business section, the Mercury News' headline was, "Mercury News parent swaps debt for equity."

The story read more like a routine business restructuring than the unprecedented shift in ownership to lenders that are owed almost a billion dollars.

"It gives us breathing space to create a new model for the newspapers we publish," the story quoted MediaNews Chairman and CEO Dean Singleton, also the founder and — until now — major shareholder.

And while the "pre-packaged" bankruptcy keeps him at the helm and offers him and other managers up to a 20 percent ownership interest, Singleton and business partner Richard Scudder will lose the company they started in 1985 and built into the second largest newspaper chain in the nation.

The bankruptcy plan will give 80 percent of the ownership to Bank of America and the 115 other banks and 49 bondholders owed money, but allows Singleton to control and appoint a majority of the board, at least for now.

Until the actual bankruptcy filing in federal bankruptcy court in Delaware, expected "soon," details are limited to those contained in MediaNews press releases and the interpretation of that information by industry and financial analysts.

It is expected that the banks will seek to sell off their stake in the company as soon as possible, but the state of the newspaper business may make that difficult.

What the bankruptcy and ownership change means to readers or employees is unclear, other than the probability of further consolidations and staff cutbacks to further improve profits — including potential impacts on the MediaNews-owned Bay Area papers. (See map.)

While the Jan. 15 bankruptcy announcement and the story in the Mercury News emphasize there would be nothing but positive affects on current operations, as the pressure from the massive debt is relieved, Singleton contradicted that in a statement to the Wall Street Journal in which he said further consolidations were essential to satisfying the banks that will own 80 percent or more of the company.

"You can look at the map," Singleton said when asked which newspapers, apparently referring to those areas — such as the Bay Area and Southern California — where MediaNews has multiple papers in overlapping or adjacent markets.

On the Peninsula, MediaNews has already made consolidations. The Mercury News now relies on news reports from Daily News reporters for its local coverage and both the Daily News and San Mateo County Times frequently carry stories and advertising from the Mercury News.

The Daily News contracted from five editions to one. Most editing and production has been centralized in the East Bay and advertisements are produced in India.

Singleton told employees in an e-mail last Friday, "We expect all of our daily operations to continue without disruption, with employees receiving normal salary and benefits, suppliers being paid, advertising being placed and newspapers being printed and delivered as usual. No layoffs, sale of newspapers, facility closings or consolidations are anticipated as a result of the financial reorganization announced today."

He described the bankruptcy restructuring as a "non-event for readers and advertisers." (To read the full text of the announcement and e-mail to employees, go to www.PaloAltoOnline.com, under the MediaNews story headline.)

Mercury News President and Publisher Mac Tully declined to comment for this story.

The bankruptcy filing is not a surprise to those who have watched the MediaNews chain grow increasingly laden with debt as the company went on a buying binge of newspaper after newspaper nationwide, culminating in the 2007 purchase of several Knight Ridder papers, including the San Jose Mercury News and Contra Costa Times.

The bankruptcy and assumption of ownership by the lenders will reportedly slash the company's debt from $930 million to $165 million.

The actual bankruptcy is being filed by a heretofore little-known entity, Affiliated Media, Inc., identified as the holding company of MediaNews.

A "pre-packaged" bankruptcy is one in which most debtors have agreed in advance to the terms, instead of the usual filing of a bankruptcy and then addressing the terms of the payment of debts.

Other than Singleton and his longtime partner, Richard Scudder, the apparent big loser is Hearst Corporation, owner of the San Francisco Chronicle, which had invested more than $300 million in MediaNews to enable MediaNews to acquire several former Knight Ridder publications in 2007. In a complex three-way deal, Knight Ridder was sold under investor pressure to longtime California publisher The McClatchy Company, which then resold to MediaNews the Mercury News (including the Palo Alto Daily News and sister papers), Contra Costa Times, Monterey Herald and St. Paul Pioneer Press.

Ironically, because Singleton is also chairman of the major wire service, Associated Press, and because most daily newspapers in the Bay Area are owned by MediaNews, most regional reporting on the bankruptcy comes from entities directly affected.

The entanglement of the Chronicle as both a competitor and an investor through its parent Hearst Corp. may also be affecting coverage. The Chronicle Saturday only carried a small Associated Press story on inside pages that said in part: "Hearst Corp., which owns magazines and newspapers including The Chronicle, has an investment in MediaNews but it was not clear how that would be affected by the bankruptcy."

The bankruptcy will be filed under provisions of Chapter 11 of the U.S. Bankruptcy Code, commonly used when a debtor proposes a plan of reorganization to keep the business alive and pay creditors over an extended time.

Prepackaged filing means there are fewer decisions for a court to make and fewer negotiations with creditors, resulting in a faster completion of the bankruptcy.

Singleton reported in a December 2009 memo to employees that he planned to restructure the company's debt in the first quarter of 2010, but made no mention of possible bankruptcy. MediaNews, which claims to be the nation's second largest newspaper publisher by circulation, was reported throughout 2009 to be unable to meet debt-payment deadlines and to be in the process of talking to creditors, including Bank of America, about a way to rework its debt.

MediaNews papers have gone through multiple waves of layoffs and cost cutting in recent years, which included outsourcing their production of advertising to India. Downsizing has been common throughout all print publications, including magazines, for a number of years, as the industry has struggled with a severe recession, declining circulation, and migration of many readers and advertisers to the Internet.

For the future, Singleton told the Wall Street Journal that dealing with the company's debt allows him to lead newspaper industry consolidation. He said he wants to be aggressive in merging newspapers, but responded to a follow-up question about which papers might be combined with just, "You can look at the map."

The MediaNews filing, along with one by Morris Publishing Group announced a day earlier, will bring to nine the number of daily newspaper publishers forced to file for bankruptcy because of unsustainable debt they acquired just prior to the great recession, according to Silicon Valley-based industry observer Alan Mutter. Others include Freedom Communications (Orange County Register), Heartland Publications, Journal Register Co., Minneapolis Star Tribune, Philadelphia Newspapers LLC, Sun-Times Media Group and, the $13 billion Tribune Co., which publishes the Chicago Tribune and the Los Angeles Times.

The horizon is not entirely bleak, however. A story in industry trade journal Editor and Publisher (which itself recently folded then surfaced again under new ownership) reported last week that "Newspaper stocks have come back so far from their parlous state a year ago that the sector now ranks among the market's best performers. ... Zacks Investment Research Chief Equity Strategist Dirk Van Dijk says newspapers now rank seventh-best among 206 industries tracked by the Chicago-based firm. Two stocks — Gannett Co. Inc and The New York Times Co. — are now given No. 1 ratings in its stock evaluation system."

However, it's all relative: "Newspaper stocks across the board are trading at or near 52-week highs, and some have rebounded spectacularly since hitting all-time low prices in the winter of 2009. Gannett's share price, for instance, is up 103 percent from a year ago. Stock in The McClatchy Co. sunk below $1 a share last year, and only narrowly avoided being delisted by the New York Stock Exchange. A year later, McClatchy shares have soared 322 percent. Still, newspaper stocks remain near historic lows. McClatchy shares in January of 2005, for instance, traded for around $60. On Wednesday, McClatchy shares closed at $5.06. ...

"While they (newspapers) may never return to their glory days, that doesn't mean that they are all going to go extinct in the near future, either. Most have greatly reduced their costs over the last year, so just a small pick up in revenue should lead to large gains on the bottom line."

Sam Chapman is publisher of the Pacific Sun, the Weekly's sister paper in Marin County. Weekly Editor Jay Thorwaldson can be e-mailed at jthorwaldson@paweekly.com.

Comments

Posted by Ano Nymous, a resident of another community
on Jan 23, 2010 at 12:03 am

Little wonder that the various local liberal newsrags are on the block. The Jerk-yer-Knee has predictably followed the Comical down the sinkhole of pandering to the liberal elite, minorities and other special-interest groups, to the exclusion of honest-to-god journalistic practices and ethical standards. Apparently the Freakly survives on real estate ads, sorely lacking as it is in the editorial leadership department.


Posted by Ano Nymous, a resident of another community
on Jan 23, 2010 at 12:11 am

And, speaking of lame-brained, non-professional (perhaps unprofessional, as well), Editors, here is a letter that was sent to me which reportedly was rejected without explanation by the Editor of the Freakly. In fact, said Editor was apparently uninterested in any criticism of the brand of "journalism" featured in his pitiful little rag.

Editor:
Assume I know nothing about the Rick Walker case apart from that which has appeared in your pitiful little rag. If one is going to employ the "facts" of this case to "spark classroom discussion" (in roughly the same way that children have been force-fed Obama worship?), then at least teach them something about the law. Such as that "factual innocence" differs from "actual innocence" (e.g., "a murder he did not commit," to quote the Freakly, and most likely the Comical), and that there should be no implications to the contrary. Can it be taken for granted that the "Most Socially Engaging Documentary" provides such valuable detail? Further crucial lessons might be derived therefrom, such as, "Advancing Your Cause Via Rich, Guilt-Ridden Palo Altans." Or, "How to Repay the State for Raising Your Kid (at least the known one), in Three Million Dollars or Less." "Reasons Other Than Political for the DA to Recant." "What About All the Other Victims Whose Killers Have Escaped on Technicalities?" If this guy was really innocent, then this case was indeed a travesty. Otherwise, this whole story is.


Posted by Walter_E_Wallis, a resident of Midtown
on Jan 23, 2010 at 3:11 am

Walter_E_Wallis is a registered user.

Just as many railroads, last century, were unable to get used to not being the only game in transportation to their detriment, MSM has largely failed to understand that spiking a story don't make it go away. In the 50s and 60s I subscribed to two or three local/regionals, and watched at least one TV "news" show. I finally got tired of paying for the privilege of being insulted.


Posted by Anon., a resident of Crescent Park
on Jan 23, 2010 at 12:02 pm

Wow, 3 posts all seeming to claim that the evil in the world comes from dreaded liberals, and all very unfactual, sarcastic and meanspirited. Do you people get that everyone is so tired of your non-productive attitudes?

Jerk-Yer-Knee = Mercury
Comical = Chronicle
Freakly = Weekly

Pitiful Little Rag reporting how children are force-fed Obama worship.

Paying for the privilege of being insulted

Somehow people with this behavior never seem to help, inform or educate anyone, all they so is to start neverending arguments that bore people to death.


Posted by Mr. Liberty, a resident of Mountain View
on Jan 23, 2010 at 8:47 pm

.... @ Anon: They (the media) put themselves in this place buy treating the paying customer as a simpleton. Lying to the public and not uncovering the cheaters and scammers in government.

>> I finally got tired of paying for the privilege of being insulted.

That is where we are now with the news as well as the political liars they pander to.

The there are three things we have left. Our money which we have chosen not to give to the lying media and our vote which we will cast for someone who will stand-up and do the honest job of representing all of us and not just the favored few.


Posted by Ano Nymous, a resident of another community
on Jan 27, 2010 at 1:34 am

Thanks so much for providing the translations, Mr. Anon! I guess you figured on being the only lib who would get the references? (But I thought you liberals were such proud folks; what, no name?)

And isn't it the "journalists" who are supposed to have the "facts?" Is it "meanspirited" to ask that they provide said facts? Or is it just plain "meanspirited" to be "sarcastic" about liberals? (If you prefer, we could just laugh at them...)


Posted by Ano Nymous, a resident of another community
on Jan 27, 2010 at 1:38 am

But there is one way to avoid "arguments" entirely, isn't there? Simply hold all of one's meetings behind closed doors, excluding CSPAN and those with opposing views all at the same time! (I forget, am I talking about Obama/Pelosi/Reid, or the Editors of the Freakly?)


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