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McClatchy, Family-Run News Chain, Goes to Hedge Fund in Bankruptcy Sale

The history of the newspaper business was on vivid display at a hearing on Tuesday, when a federal bankruptcy judge confirmed the sale of the McClatchy Company, a newspaper chain run by the same family since 1857, to a New Jersey hedge fund in a deal valued at $312 million.

The sale of McClatchy, the owner of The Sacramento Bee, The Miami Herald and more than two dozen other news outlets in 14 states, to Chatham Asset Management was in the works since February, when McClatchy filed for Chapter 11 bankruptcy protection after more than a decade of losses and cutbacks.

The deal, which will move a prestigious news publisher from family control to an investment company, is in keeping with a broader trend that has alarmed many press advocates, who argue that finance firms are imperfect stewards of an industry built on the watchdog work of chronicling government and commerce.

At the 3 p.m. hearing, Judge Michael E. Wiles approved the result of an auction held last month in which Chatham, a fund that controls more than $4 billion in assets, emerged as the winning bidder.

The hedge fund offered to convert the more than $262 million it owns in McClatchy debt into equity in a Chatham-owned version of the company. It also agreed to throw in roughly $49 million in cash and will pay additional costs, including employee payroll, that McClatchy incurred since filing for bankruptcy.

After the sale becomes official — probably by September — Chatham will become the owner, and the publicly traded McClatchy will go private. The company’s chairman, Kevin S. McClatchy, the great-great-grandson of the founder, James McClatchy, and its chief executive, Craig Forman, said they planned to depart once the deal closes.

Credit…Salgu Wissmath for The New York Times

The company will not be split up after it emerges from bankruptcy, according to the terms of the agreement. In a July 24 news release, McClatchy said Chatham’s bid would allow it to retain most of its employees and honor its collective bargaining agreements.

After the judge announced his decision on Tuesday, Mr. Forman said in an interview that the sale would benefit the company he has led since 2017. “Now, with this successfully addressed, McClatchy is very well positioned to go forward and continue to drive what we’ve built in the last three years, a sustainable digital growth platform for local news,” Mr. Forman said.

The runner-up bidder, Alden Global Capital, a New York hedge fund that controls more than 200 news outlets through MediaNews Group, lost out after having offered what amounted to approximately $210 million in debt and cash, according to a court filing. (An unspecified third party made a bid that was deemed insufficient, according to a filing.)

Chatham has a growing presence in the news industry. In 2016, it took a majority stake in Postmedia, one of Canada’s largest newspaper companies. Since that deal went through, 1,600 Postmedia employees have been laid off, and more than 30 of its publications have been shut down. Chatham is also the principal owner of American Media Inc., the parent company of The National Enquirer and other supermarket tabloids.

By taking over McClatchy, a consistent winner of prestigious journalism awards, Chatham will acquire 30 news outlets in the United States. In addition to the McClatchy flagship paper, The Bee — which was founded in the wake of the California gold rush — the chain includes The Charlotte Observer, The Kansas City Star and the news agency McClatchyDC.

The mayors of several cities with McClatchy dailies, including Sacramento and Lexington, Ky., filed letters with the bankruptcy court urging civic-minded local ownership. Sree Sreenivasan, a professor of digital innovation at Stony Brook University’s School of Journalism, noted with dismay the absence of bidders who were not part of the finance world.

“It’s a sad moment, because that tells you that people who traditionally might have supported local journalism — including people with local connections, local stakeholders — were not there,” Mr. Sreenivasan said.

The completion of the sale will extend the finance industry’s sway over local news coverage. The nation’s largest newspaper chain, Gannett, the publisher of USA Today and some 250 other dailies, owes significant debt to one private equity fund, Apollo Global Management, and is controlled by another, Fortress Investment Group, which is owned by the Japanese conglomerate SoftBank.

Alden, in addition to its roughly 200 news outlets, has a 32 percent stake in another major chain, Tribune Publishing. It also owns a large stake in Lee Enterprises, which publishes The Buffalo News and roughly 75 other dailies in 26 states.

McClatchy’s troubles can be traced to 2006, when it bought its larger rival, Knight Ridder, for $4.5 billion, plus the assumption of $2 billion in debt. Over the next 12 years, McClatchy cut its work force from more than 15,000 full-time employees to around 3,300, according to public filings.

Chatham started investing in McClatchy in 2009 and became the chain’s largest creditor. The fund was the leading candidate to buy McClatchy after the company filed for bankruptcy, citing its inability to meet obligations that were part of a $1.4 billion pension plan.

Chatham is led by Anthony Melchiorre, a Chicago-area native who worked at Goldman Sachs and Morgan Stanley. In 2002, he was let go from Morgan Stanley as part of a round of layoffs. Soon after, he set up his own hedge fund in Chatham, N.J. Some of its clients are listed under a Cayman Islands address, where more favorable tax rates apply.

Hedge funds often find bargains by taking on properties that may seem unattractive. The newspaper industry has been struggling for years as the rise of digital media has cut deeply into advertising and circulation revenue. Roughly a quarter of the newspapers in the United States, most of them weeklies, were shut down between 2004 and 2019, and about 50 percent of newspaper jobs were eliminated in that time.

Making the outlook grimmer is the economic slowdown imposed by the coronavirus pandemic — meaning the new owner of McClatchy is in for a challenge.

“We know the outlook is unpredictable in every single metric,” Mr. Sreenivasan said. “How do even the best-intentioned of owners plan for looking ahead?”

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