April 28, 2010 / 9:29 PM / 8 years ago

UPDATE 3-Lenders win Philadelphia Newspapers auction

* Lenders outbid local investors

* Auction likely ends contentious bankruptcy process

* Increases Angelo, Gordon’s stake in newspaper industry

By Jennifer Saba and Tom Hals

NEW YORK/WILMINGTON, Del., April 28 (Reuters) - Creditors to the bankrupt owner of The Philadelphia Inquirer on Wednesday outbid a group of investors that included billionaire financier Ronald Perelman for control of the Inquirer and the Philadelphia Daily News.

Holders of the company’s secured loans offered $105 million in cash plus the company’s real estate to buy Philadelphia Newspapers LLC, which owns the Inquirer and the Daily News. The bid amounts to $138.9 million, according to the Inquirer. The paper earlier reported the bid was worth $135 million.

The money essentially will end up with the creditors because the company owes them about $318 million. The group includes investment firm Angelo, Gordon & Co and a unit of Credit Suisse.

The lenders outbid a group of Philadelphia-area investors led by Bruce Toll, the vice chairman of Toll Brothers Inc (TOL.N). Some of those investors, along with current Chief Executive Brian Tierney, invested $562 million in the papers to buy them in 2006 from McClatchy Co (MNI.N).

McClatchy got the papers when it bought Knight Ridder that year. Tierney has insisted he was not working with Toll on the more recent bid.

The auction should bring to end a contentious bankruptcy.

For the last year, the publisher’s management, led by former public relations executive Tierney, battled with lenders over everything from ads the papers ran that blasted “Beverly Hills” hedge funds for trying to seize the papers to the clandestine recording of a meeting.

The lenders said Robert Hall, a long-time newspaper executive, will be chief operating officer as they search for a chief executive. Hall was the former publisher of the Inquirer and Daily News as well as the Detroit Free Press when the papers belonged to Knight Ridder.

The lenders are “bullish” about the newspaper industry and think they are “good investments,” Hall said during a press conference this afternoon that.

Hall also said the lenders plan to continue operating the Daily News because it is a “valuable part of our community.”

The auction for the publisher was scheduled to begin at 11 a.m. on Tuesday in New York City. It did not start until nearly 4 a.m. on Wednesday.

It was delayed until the lenders agreed to hire substantially all of the employees of the Philadelphia Newspapers, dropping an earlier provision of their bid that would have required the 4,500 employees to reapply for their jobs.

The new owners will begin contract negotiations with the unions representing Inquirer and Daily News employees, but said the company can emerge from bankruptcy before any contracts are signed.

For Angelo, Gordon, the bid adds to its investments in newspapers. The group owns most of the Star Tribune in Minneapolis, which it also bought in bankruptcy, and will likely end up with a stake in Tribune Co TRBCQ.PK when it emerges from bankruptcy.

BACK TO COURT

Philadelphia Newspapers will go back to bankruptcy court on May 25 to ask a judge to confirm its plan of reorganization, which will clear the way for the papers to emerge from bankruptcy.

The case became closely watched for the company’s requirement that bids be in cash, rather than allowing the lenders to bid what they were owed as is the usual practice in bankruptcy auctions.

Critics of the requirement, which included one Appeals Court judge, questioned if management was trying to keep the company in insiders’ hands while scrubbing it of its debt.

Tierney told Reuters last week he spent a year fighting to shame the lenders into taking a long-term view of the business rather than keep it loaded with debt, as they had proposed.

“The original plan was to tie a noose around the neck of this company, and therefore my employees, and throw them off the side of a bridge,” he said.

The bankruptcy case is In re Philadelphia Newspapers LLC, U.S. Bankruptcy Court, Eastern District of Pennsylvania, No. 09-11204. (Reporting by Jennifer Saba in New York and Tom Hals in Wilmington, Delaware. Editing by Robert MacMillan)

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