The Sun-Times Media Group Is on Its Way to New Owners | Bleader

Tuesday, September 8, 2009

The Sun-Times Media Group Is on Its Way to New Owners

Posted By on 09.08.09 at 07:55 PM

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For $5 million, financier James Tyree and the investor group he represents has taken a huge first step toward buying a local media empire — and $22 million of debt.

The Sun-Times Media Group announced Tuesday evening that it's entered into an asset purchase agreement with Tyree's STMG Holdings, LLC. The $5 million is technically a bid, and if anyone wants to bid against Tyree for the Sun-Times and the media group's 58 suburban titles, the federal bankruptcy court in Delaware, where the STMG is incorporated, will hold an auction.

But interim CEO Jeremy Halbreich of the STMG celebrated this mere "step" as though it were salvation — a destination nobody was sure would ever be reached.

"This agreement is an exciting and very positive step in the process of securing the future of Sun-Times Media Group's distinguished print and online brands that are such integral parts of the communities they so proudly serve..." said Halbreich, in a prepared statement. "This proposed Purchase Agreement will create and establish a wonderful future for our publications and for our employees."

He went on, in a reference to draconian cost-cutting throughout the company, before and since it filed for bankruptcy five months ago, "The Company and all of our employees have taken extraordinary steps to enhance revenues, reduce costs and strengthen our organization to become a leaner, more efficient Company that is capable of meeting the demand for news and information in this increasingly digital age. This agreement brings us one step closer to achieving our goals."

Earlier this year the leaders of STMG unions agreed to 15 percent wage cuts to keep the company going, and at a meeting last Thursday with Halbreich and Ted Rilea, they were told a sale was contingent on the unions being willing to put up with those cuts indefinitely. Despite the economies — a reporter at a suburban daily says his paper's so short-staffed that covering the news is like "spinning plates" — the media group is still losing millions of dollars a month. The Tribune reported that it had lost $3.8 million in July and was declared "administratively insolvent" — meaning the company couldn't even afford to shut down and pay severance.

A motion to approve the sale of the media group, filed Tuesday in bankruptcy court, laid out the company's unhappy recent history. In 2007, before entering bankruptcy, it hired Lazard Freres & Company to find a buyer. "This sale effort lasted several months but yielded no offers." The day it filed for bankruptcy, last March 31, it retained Rothschild Inc. to do the same. Rothschild and the the STMG between them "identified 46 parties, including private equity investors, publishing companies and high net worth individuals as potential buyers. Twenty-two entities executed confidentiality agreements and received investor presentations.... Some of the entities expressed interest in acquiring different pieces of the Debtors' businesses, and one candidate [Tyree] expressed interest in the Debtors' entire enterprise on a going concern basis...

"The fact that the sale process did not garner additinal offers is an indicator of the extremely distressed state of the newspaper industry....The Debtors are particularly vulnerable to this economic downtown that has battered the newspaper industry, because they are the victims of well-documented malfeasance by certain former directors and officers. [Those would be Conrad Black, now in prison, and David Radler, out of prison.] Those acts bled the Debtors of hundreds of millions of dollars in cash..."

The motion says the Tyree sale option likely will require the media group to remain in bankruptcy "for a period of time," but that it will "preserve the Chicago Sun-Times as a going concern... The Debtors currently employ 1,409 hourly employees (approximately 45% of which are unionized) and 495 salaried employees, all of whose jobs would be eliminated in a liquidation. The proposed sale option avoids this draconian result and preserves jobs." What is more, it will "preserve rather than destroy a vital part of Chicago's rich journalism history, which in the case of the Sun-Times traces its origins to 1948."

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