Thursday, May 10, 2012

The bright side to the Reader sale—we continue to exist

Posted By on 05.10.12 at 11:49 AM

Brad Bulkley
  • Brad Bulkley
Half a dozen suitors kicked the tires of the Reader, investment banker Brad Bulkley told me Thursday, but a couple presumably didn't care if the tires were flat. "They would have closed it up just to eliminate competition," said Bulkley, who from his Dallas office has been brokering the sale of this paper on behalf of its owner, Atalaya Capital Management. And for that reason Bulkley, who says he grew up in Chicago with the Reader, urged Atalaya not to take their offers.

Who might those competitors have been? The Tribune, with RedEye? Joe Mansueto, who controls Time Out Chicago? Bulkley wouldn't say. I pointed out to him that Mansueto, aside from any individual bid he might have made for the Reader, is one of the investors who control Sun-Times Media and appear likely to close the deal on the Reader in about a week.

"Isn't that interesting?" said Bulkley. But he put me at ease. Those investors are known collectively as Wrapports LLC, and are led by chairman Michael Ferro, a venture capitalist. "Mansueto, if you're back to Wrapports, he's an important investor, don't get me wrong, but Ferro is driving that ship," Bulkley said. "So he's a more passive investor. He's not running the show as he would at Time Out Chicago."

On Wednesday, reporter Lynne Marek of Crain's Chicago Business posted a story reporting that Wrapports was wrapping up a deal to buy the Reader for around $3 million. Bulkley was quoted as confirming to Marek that a sale was near. Bulkley told me he had not identified the specific buyer to Marek, and he did not identify the buyer to me—but he didn't leave me in any doubt.

"I've met directly with the owners and management of the suitor and they outlined a plan to me which was not BS, and their plan was not only to invest in the Reader but to buy some other publications in the area," Bulkley said. "Ironically, they'd love to own Crain's. Maybe I'll be going after them next."

I said I'd heard that Ferro might even be interested in the Tribune too. "I think Ferro is an ambitious entrepreneur and is not bashful," Bulkley replied. "I would not take that out of the range of possibilities. If he had his way, he'd try to buy the Tribune, buy Crain's, buy a lot of the surrounding things, and it would be a good thing if he did. I'm impressed with the guy. He may be the kind of progressive owner media needs." Bulkley noted that he's turning the Sun-Times into a midwestern New York Post (something Rupert Murdoch couldn't do back in the 80s). "I don't know what he'd do with the Tribune," Bulkley said.

And the Reader?

"I think he's going to leave the Reader to continue to be, preserve the franchise it has, and maybe it could be that it supplements what else he owns if he prevails with this. He might even have the Reader as an insert in certain things."

I stopped him there. Nobody at the Reader wants it to wind up an insert in some other paper. "I don't mean that would be the new way," Bulkley said. "It'll be an individual publication, but in some of the outlying areas he might do something like that if he were to end up owning it. I don't think he'll make it an insert. That would make me cringe too and I don't think it'll happen—not in the metropolitan area. But it's all speculation."

Five years ago Bulkley, representing the founding owners of the Reader, brokered the sale of the Reader and its sister paper, Washington D.C.'s City Paper, to Creative Loafing Inc. in a $30 million deal. Ben Eason, Creative Loafing's CEO, borrowed some $40 million to do the deal, $30 million of it from Atalaya. Eason couldn't service the debt, filed for bankruptcy, and Atalaya wound up with Eason's papers.

"The first time around it was about the money," Bulkley told me. "This time around it was about the publications and the people, because the money was already lost." I told him that inside the Reader, the most painful piece of the Crain's story was the $3 million price tag, a tenth of the $30 million we remembered the Reader being sold for five years earlier.

"You're worth more than $3 million, but times are tough," Bulkley said, and asked me to look on the bright side. For one thing, Eason paid only $20 million for the Reader and City Paper, the rest of the sale price buying real estate. And of the $20 million, the Reader's share was no more than $15 million. Furthermore, he hinted that the $3 million price tag Marek reported understates the actual figure, though not wildly, and he said the buyer will have to invest another $3 million in the Reader to really put it on its feet. So he said I should think of it as someone paying more than $6 million for a paper someone else paid two and a half times as much for five years earlier.

Well, that's marginally less depressing! Bulkley went on, "I will tell you this. The price we wound up getting is over four times where the prices started with several suitors." They bid each other up? "They did, and we worked them up. They assumed it to be a fire sale and it wasn't." Thanks to investments Atalaya made in the Reader, the suitors were bidding on a profitable weekly paper.

Bulkley said he's impressed on the next owners the importance of calling on the Reader, sitting down with the staff, and getting to know them. He said, "It needs to be a celebration."

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