The Work

September 23, 2010 5:09 PM

Akin Gump, Creditors Win Philly Papers Auction

Posted by Zach Lowe

This just in: Senior creditors won a second auction for the bankrupt parent company of Philadelphia's two largest newspapers on Thursday and will take control of the company, according to The New York Times and lawyers involved in the auction. And given the fireworks that preceded the deal, we can't wait to hear the details.

The creditors, headed up by the hedge funds Alden Global Capital and Angelo, Gordon & Co., won the company with a successful bid of $105 million. That's $34 million less than the same group bid in the first auction in April, when they outbid two other investor groups. But the terms of that auction required the creditors to agree to contracts with all 15 labor unions tied to the two papers, the Philadelphia Inquirer and the Philadelphia Daily News. They could not come to terms with one Teamsters union. That failure blew up the deal and brought the creditors back into court for a second auction--this time with the understanding that the winning bidder would be stuck with the papers regardless of their ability to strike agreements with the unions, according to our prior reporting. 

The original stalking horse bidder--a group of investors--included the union contract requirement in their bid that set the floor for the first auction, and latter bidders simply included it in their proposals, according to Mark Thomas, a lead partner on the Proskauer Rose team that advised the newspaper company along with Dilworth Paxson

"We're excited," says Thomas. "The purchaser showed it really wants to get this deal done and continue the operation of the papers."

The creditors, represented by Akin Gump Strauss Hauer & Feld, faced only one rival bidder in Thursday's auction: Raymond Perelman, the 93-year-old father of billionaire Ron Perelman. The senior Perelman, who was advised by Skadden, Arps, Slate, Meagher & Flom, came strong with an $85 million bid, but it was not enough.

"We were happy to have participated in what we sincerely hope will turn out to have been the final chapter of the papers' bankruptcy cases," says J. Gregory Milmoe, the lead Skadden partner on the case for Perelman.

One additional note for bankruptcy buffs: The rules of the auction banned senior creditors from making a so-called credit bid, through which creditors essentially exchange their debt holdings for equity in the new company. The creditors in this auction would have to pay cash to the bankruptcy estate of the newspapers' parent company. But in a funky (if common) twist in bankruptcy auctions, that cash will go right back to the buyers, since they are secured creditors and thus first in line to be repaid by the estate. It's not a credit bid, but it's close. 


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