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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.

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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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Hedge Funds Duel in Bankruptcy Court Over McClatchy Newspapers

A battle of the hedge funds is brewing in the bankruptcy auction of the McClatchy Company, one of the nation’s largest and most decorated newspaper chains, pitting Chatham Asset Management and Brigade Capital Management, both debt holders in the chain, against a newcomer to the proceedings, Alden Global Capital.

Chatham and Brigade seemed to have an advantage going into the planned court-supervised sale of McClatchy. In April, McClatchy said it had received an offer worth more than $300 million from the two firms, which had taken on much of McClatchy’s debt in a Chapter 11 restructuring. The two hedge funds planned to use that debt as part of the bid, which would keep the chain, with 30 newsrooms across the country, intact.

Alden, a New York hedge fund that has become a force in the newspaper business, tried to disrupt the Chatham-Brigade proposal on Wednesday by filing an emergency motion in a U.S. Bankruptcy Court. Alden asked Judge Michael E. Wiles to stop any attempt to buy McClatchy through a credit bid, a transaction that would allow Chatham and Brigade to use the company debt they had assumed toward the purchase price.

Alden’s maneuver suggested that it, too, had an interest in acquiring McClatchy, a 163-year-old chain that fell on hard times not long after its $4.5 billion purchase in 2006 of a much larger rival, Knight Ridder.

At a remote hearing on Thursday, Alden’s interest was confirmed by a lawyer for the hedge fund, Lisa G. Beckerman of Akin Gump Strauss Hauer & Feld. She said Alden was prepared to “top” the previous bid, but argued that Chatham and Brigade would have an unfair advantage if they were allowed to make the debt they had accrued part of their offer. Judge Wiles denied Alden’s motion, permitting Chatham and Brigade to go ahead with their plan.

The court also scheduled a new date for the start of the auction process, setting it for Friday. It had previously been scheduled to start on Wednesday.

Chatham is not a newcomer to the newspaper industry. It is the principal owner of American Media, which operates the National Enquirer supermarket tabloid, and a major investor in Postmedia, the publisher of Canadian newspapers including The National Post, The Montreal Gazette and The Ottawa Citizen.

A lawyer identified as a representative of the Knight Foundation listened in on the hearing as a nonparticipant. The Knight Foundation is a journalism nonprofit organization with an endowment of more than $2 billion. It originated with the family whose newspaper chain merged with another to form Knight Ridder, the company bought by McClatchy 14 years ago.

McClatchy, a business that has been in the same family since 1857, with the founding of the forerunner of The Sacramento Bee, is the publisher of The Miami Herald, The Charlotte Observer and The Kansas City Star, among other major dailies. A consistent winner of top journalism prizes, it says it is the second-largest newspaper chain in the United States.

The Alden-owned MediaNews Group has drastically cut costs at newspapers it manages. In 2018, staff members at The Denver Post, a MediaNews Group daily, openly rebelled, publishing a special section filled with articles critical of ownership. “If Alden isn’t willing to do good journalism here,” The Post’s editorial board wrote in the lead editorial, “it should sell The Post to owners who will.”

Alden owns 32 percent of Tribune Publishing, the chain that operates The Chicago Tribune, The Baltimore Sun and newspapers in nine other major metropolitan areas in the United States. Last week the hedge fund increased its influence on Tribune Publishing when it gained a third seat on its seven-member board. Alden also has an interest in another newspaper chain, Lee Enterprises, and its MediaNews Group controls roughly 200 publications.

From 2004 to 2019, roughly half of all newspaper jobs in the United States were eliminated as the cumulative weekday circulation of print papers fell to 73 million from 122 million, according to a University of North Carolina study.

At the same time, advertising revenue fell sharply as readers gave up print newspapers, a longtime home of lucrative retail ads and classified notices, in favor of digital devices. Google and Facebook came to dominate the online ad market, hampering publishers’ attempts to generate the necessary revenue from digital ads.

Wall Street ownership of newspapers has become common, and Alden helped drive that trend since the Great Recession, when it started grabbing stakes in distressed news media companies.

Alden’s emergency motion was first reported by McClatchy DC, a news site staffed by McClatchy journalists in Washington.

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