This is the kind of shape the newspaper business is in: Brian Tierney, a former public relations executive with a reputation for going after reporters, has become the last man standing in a fight to keep Philadelphia’s newspapers out of the hands of bankers.
Tierney, who ran his own communications company before buying the Philadelphia Inquirer and the Philadelphia Daily News in 2006, is the kind of newcomer longtime newspaper veterans love to hate. He’s slick, he cut his teeth in public relations and he loves to wrap his mouth around a catchy phrase.
Right now, rhetoric is all he has left. Philadelphia Newspapers, the company that owns the two papers, entered into bankruptcy in February last year after laboring under declining performance and US$318 million in debt. Tierney maintains he (and not the debt holders) should hang on to the papers as a civic good and he has prevailed in court so far.
The issue may seem local — Tierney has suggested the future of news in Philadelphia is at stake — but it resonates across the country. Many newspapers were sold in the past few years in deals that involved a great deal of debt. As the recession deepened in 2008, media watchers wondered what the world might look like if lenders owned newspapers.
We’re finding out: As revenue servicing all that debt has evaporated, there have been 13 major bankruptcies in the newspaper industry. The Star Tribune in Minneapolis is being operated by its creditors, and just last Thursday executives at the Tribune Co, which was bought by Sam Zell with US$13 billion in debt, said they had reached an agreement to hand the keys to its creditors.
Tierney wants to hang on to the keys, or at least, he says, to deliver the Philadelphia newspapers to “someone who wants to be in the business, not somebody who bought the debt for 12 cents and is trying to flip it for a little more.”
“I have a fiduciary duty, not just to the lenders, but to the employees and other people who depend on this paper,” he said.
An auction for the property had been set for April 27, and Tierney’s lawyers argued that the senior lenders, which include CIT Group, Angelo, Gordon and Credit Suisse, should not be allowed to use the debt they are owed to bid for the company, a so-called credit bid. Improbably, Tierney’s position won the argument in front of a federal appeals court that disallowed the credit bid on March 22, but last Wednesday the plot thickened again when lenders asked that the auction be delayed to give them time to appeal.
In the months of brawling, Tierney has accused lenders of illegally taping him and exercising bad faith in and out of court. At a news conference last week, he took particular aim at Angelo, Gordon, a hedge fund that specializes in distressed assets. In addition to a senior debt position in Philadelphia, Angelo, Gordon has a significant stake in the Tribune Co, which owns the Los Angeles Times and the Chicago Tribune, and also owns a large stake in the Star Tribune in Minneapolis.
He called Angelo, Gordon “a secretive hedge fund that has its fingers on the throat of the Los Angeles Times and the Chicago Tribune and will someday, they hope, basically control the news in three of the four largest news markets in the country if they are able to capture Philadelphia as well.”
The judges denied the debt holders’ request on Thursday, and the decision was upheld on Friday. The auction will go off as scheduled and be followed by a confirmation hearing to investigate whether all parties received fair value for their interests in the newspapers.
“I’m glad how the day went on Thursday,” Tierney said. “I was able to hold a press conference so people could see what we are dealing with.”
Thomas Fuller, the executive in charge of distressed assets at Angelo, Gordon, did not respond to a request for an interview, nor did Fred Hodara, lead lawyer for the senior lenders, but he sent an e-mail response to the Philadelphia Inquirer.
“Here’s a broken promise. He borrowed US$400 million to finance his acquisition of the company and is now doing everything he can to dishonor the desires of those to whom he made the promise to repay those obligations,” Hodara wrote.
There’s not much logic in any owner running a newspaper into the ground, but Tierney argues that if the lenders take control, the newspapers could end up with so much debt that bankruptcy could become a serial exercise. Martin Bienenstock, an experienced bankruptcy lawyer at Dewey & LeBoeuf, a Manhattan law firm, has no involvement in the case, but he has some strong opinions about Tierney’s effort to thwart the senior lenders.
“Piercing the prose for a moment, you have management trying to choose its owners at the expense of creditors’ rights,” he said, adding that the court’s decision to block a credit bid made little sense to him.
Tierney is an unlikely warrior on behalf of newspapers. In his previous incarnation as a communications executive, he had pounded journalists on behalf of various clients. Even though the newspapers’ fortunes have declined, however, he has come to be seen as a champion of local, involved ownership and would like to continue to run the newspapers.
Buzz Bissinger, the author and Inquirer columnist, is as surprised as anyone at seeing Tierney in this new role. “When he first got the papers, I was as suspicious as anyone else, because Brian had spent a lot of time fighting with the paper, but he ended up falling in love with it,” he said. “He is a tough guy who I think is acting in good faith.”
The asset being fought over shrinks with each passing day. Tierney said that the newspapers made US$17 million last year on US$325 million in revenue and predicts that even with an economic recovery, the newspapers will be down 12 percent to 17 percent this year.
Add in the almost US$30 million in fees associated with the fight over control and the company will not survive the summer if there are further delays in resolving its debt.
Tierney is already out the US$10 million he invested in the property, taking a hit along with other local investors, and he said that he would feel he had done his job if either a stalking-horse bid put together by local interests or another media-savvy company took control. He said he had contacted more than 200 potential bidders.
“I’ve flown all over the country and talked to people who might be interested,” he said. “It can be a decent business, and I will do anything I can to get it in the hands of people who want to run it for five or 10 years.”
The sadder fact may be that it may not matter that much who prevails in the auction and the confirmation hearing that follows. Alan Mutter, a media consultant, said advertising sales in the newspaper industry had dropped to US$27 billion last year, from US$49 billion in 2005, so just getting rid of debt would not be enough no matter who owned newspaper properties.
Tierney may have come to newspapers later in life, but he said, “I’ve drunk the Kool-Aid.”
“Think of what we are doing right now, talking about the implications of this story and this case. Isn’t it great?” he said, and then pivoted quickly to put on his old public relations hat. “Am I going to grimace when I read this?”
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