UPDATE 1-Unions threaten strike amid Philly papers auction

* Unions threaten strike

* Threat could impact auction

* Auction delayed by continued wrangling (Updates with parties still waiting for auction to start in paragraph five)

By Tom Hals

WILMINGTON, Del., April 27 (Reuters) - Unions warned of a possible strike if the winning bidder at Tuesday's auction of the publisher of The Philadelphia Inquirer slashes staff at the newspaper, a threat that could affect the auction.

"If upon conclusion of the bidding the successful bidder, whoever that is, does not immediately confirm in writing that it will maintain the status quo with respect to the employment of our members under the existing terms, we are presented with a notice of mass layoffs ... we will have no choice but to react appropriately," said a statement from Joseph Lyons, the president of the Philadelphia Council of Newspaper Unions.

Lyons told Reuters a strike was one possibility.

The group represents eight unions at the Philadelphia Newspapers, which owns Philly.com and The Philadelphia Daily News as well as the Inquirer.

Three groups will be bidding at Tuesday's auction, which was scheduled to start at 11 a.m. in New York but had not started even by 10 p.m. due to wrangling over the bids, according to a report on Philly.com.

At a court hearing on Monday, a group that includes holders of the company's secured debt said they planned to lay off the company's 4,500 staff and rehire 51 percent, according to Lyons.

The other two bidders are a group led by Bruce Toll, the vice chairman of Toll Brothers Inc (TOL.N), and Stern Partners Inc of Vancouver. Toll brought billionaire investor Ron Perelman into his group last week.

Lyons said the Toll and Stern bids are contingent upon reaching a labor deal.

Management of the company is required to choose the highest and best offer in such an auction, but the strike threat could give it the opportunity to reject a bid from the secured lenders, even if they offered more money.

"It's certainly plausible that's where we could be headed," said David Skeel, a law professor at the University of Pennsylvania Law School. "This is uncharted waters."

The company has been at odds with secured lenders, who are owed about $318 million, since it declared bankruptcy.

Philadelphia Newspapers has fought through several courts against the secured lenders to prevent them from bidding what they are owed, a common practice in bankruptcy known as credit bidding.

The secured lenders and one Appeals Court judge have questioned if the company has prevented credit bidding as a way to scrub the company of its debt but keep it in the hands of insiders.

Toll was part of the group led by Philadelphia advertising executive Brian Tierney that acquired the company in 2006 for $562 million.

Tierney has said he is not affiliated with the Toll group.

The bankruptcy case is In re Philadelphia Newspapers LLC, U.S. Bankruptcy Court, Eastern District of Pennsylvania, No. 09-11204. (Editing by Muralikumar Anantharaman)