The Philadelphia Inquirer, Philadelphia Daily News, and, Sold for $55 million

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PHILADELPHIA – from – A group of local investors agreed on Monday to buy Philadelphia Media Network Inc., the parent company of The Philadelphia Inquirer, Philadelphia Daily News, and, for $55 million with an additional $10 million in working capital for operations. The deal represents the fourth ownership change for the media properties in less than six years.

Led by businessman Lewis Katz, 70, and insurance executive and Democratic leader George E. Norcross III, 56, the group has agreed to buy PMN from a collection of hedge funds and other financial firms that have owned the daily newspapers and their related website since they emerged from bankruptcy in October 2010.

Besides Katz and Norcross, the new owners include philanthropist H.F. “Gerry” Lenfest, 81, Holtec International Corp. chief executive officer Krishna P. “Kris” Singh, 64, and Liberty Property Trust CEO William P. Hankowsky, 61, and Joseph Buckelew, chairman of Conner Strong Buckelew, an insurance brokerage based in South Jersey.
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Katz and Norcross will serve as managing partners of Interstate General Media L.L.C., the new parent company; Lenfest will serve as chairman of the board. The enterprise will still do business as Philadelphia Media Network.

The new owners said they intend to retain PMN’s current management team, led by CEO Gregory J. Osberg.

Representatives of New York hedge-fund managers Alden Global Capital and Angelo, Gordon & Co. have generally kept quiet throughout the sale process. They bought the media properties after a hotly contested bankruptcy auction in 2010 in a transaction valued at $139 million.

The six new owners will sign a pledge that they will not interfere with the operations of PMN’s three newsrooms. That pledge, which three of the six owners signed Monday morning, was drafted largely by the newsroom’s leaders: Inquirer editor Stan Wischnowski, Daily News editor Larry Platt, and editor Wendy Warren.

The price now being paid represents a discount to the $100 million Alden Global and Angelo Gordon were reportedly seeking for the properties when word of the possible sale came to light in late January.

The privately held PMN has sold off several assets since emerging from Chapter 11 bankruptcy less than two years ago. The company sold its Broad Street Publications division of weekly newspapers for an undisclosed amount in December 2010. In the fall, it sold its iconic office tower at 400 N. Broad St. to developer Bart Blatstein for $22.65 million.

PMN has been undergoing much change within the last year as Osberg launched several initiatives aimed at upgrading the technology in the newsrooms, as well as introducing news-related mobile-phone apps and a tablet computer to increase digital readership.

In November, the company announced plans to move into 125,000 square feet of office space in the former Strawbridge & Clothier department store at Eighth and Market Streets as part of plans to combine the now-separate newsrooms of The Inquirer, Daily News, and

Like much of the newspaper industry, PMN has been struggling financially, with declining advertising revenues and smaller circulation bases than a decade ago. A recent report by the Pew Research Center said advertising revenues industrywide decreased 7.3 percent in 2011, to $23.9 billion. Ad revenues peaked at $48.7 billion in 2000.

As a privately held company, PMN does not disclose its financial results. But when the company said on March 15 that it would lay off 18 unionized and five non-union employees from its three newsrooms, PMN spokesman Mark Block said the workforce reduction was needed because the “kind of revenue we have been generating has not been enough to sustain the personnel we have.”

PMN management has undertaken several cutbacks in the size of the workforce within the last year, including 27 employees last fall. Besides the current round of layoffs, which took effect March 31, 22 other members of the Newspaper Guild were approved for voluntary buyouts in mid-March.

Unlike the last sale of the newspapers and website, which played out in the public eye as the result of a 2009 bankruptcy filing, the current negotiations have been conducted quietly – save for several public statements made by former Pennsylvania Gov. Ed Rendell in a variety of settings about his involvement with what would prove to be the successful investor group including Katz and Norcross.

One person mentioned early on as a possible investor, Philadelphia Flyers founder Edward M. Snider, is not among the new ownership group.

Nor is Philadelphia philanthropist Raymond G. Perelman, who at one point complained about being prevented from participating in the sale. Perelman said March 22 that he had withdrawn from the Katz/Norcross group.

Until 2006, The Inquirer and Daily News were owned by Knight Ridder Inc. The San Jose, Calif., newspaper chain put itself up for sale in 2006, but when The McClatchy Co. agreed to buy Knight Ridder in March 2006, it announced plans to divest 12 papers, including the two Philadelphia dailies.

A local investors group led by advertising and public-relations executive Brian P. Tierney bought what was then called Philadelphia Newspapers Inc. in a June 2006 transaction for $515 million in cash, of which all but $150 million was borrowed.

The combination of the heavy debt load and a downturn in business because of the U.S. recession proved to be too much, and Tierney’s Philadelphia Media Holdings L.L.C. filed for bankruptcy in February 2009, owing its senior lenders about $318 million.

Hedge funds and private-equity firms were active buyers of distressed newspapers and other media properties during the recession and subsequent sluggish recovery. Angelo Gordon and Alden Global amassed significant positions in the distressed debt of Philadelphia Media Holdings.

An acrimonious bankruptcy ensued, culminating in the vigorously contested auction overseen by U.S. Bankruptcy Court that ended with a group of 32 financial investors, led by Angelo Gordon and Alden Global, acquiring the media company in a transaction valued at $139 million that closed in October 2010.

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