Local investors buy Inquirer, Daily News, website
Originally published April 2, 2012
The pursuit of The Inquirer, Philadelphia Daily News, and Philly.com began in October with an unsolicited offer by two businessmen with South Jersey roots, Lewis Katz and George E. Norcross III.
It ended Monday with Katz, Norcross, and four other local investors paying $55 million to acquire the daily newspapers and their related website from the hedge funds and financial firms that had owned them since they emerged from bankruptcy in 2010.
But in between, this latest sale of the media properties - their fourth in six years - would involve a former Pennsylvania governor, frustrate some potential suitors who felt excluded from the process, see top company executives pull or alter stories about the sale that had appeared on Philly.com, and prompt readers and others to wonder what a change in ownership would mean for them.
Led by Katz, 70, and Norcross, 56, the group purchased Philadelphia Media Network (PMN) for a fraction of the $515 million paid in 2006 by a previous local investor group. But the challenges they face remain substantial. Advertising revenues have fallen by 50 percent in six years, and on their first day, none of the new owners offered easy remedies.
"We have every confidence in the world, and have invested tens of millions of dollars in our belief that we are going to make this successful and do things that people said couldn't be done," Norcross said in an interview.
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; Liberty Property Trust CEO William P. Hankowsky, 61; and Joseph Buckelew, 81, chairman of Conner Strong Buckelew, an insurance and employee-benefits firm based in Marlton of which Norcross is executive chairman.
In an interview and during a news conference Monday, Katz, Norcross, and Hankowsky stressed that they do not intend to interfere with news gathering and would sign a pledge to affirm that. "We do not want to run the newspapers," Katz said. "We want to merely own them for the benefit of our community. We recognize the trust, the public trust."
As part of the sale that closed Monday, the new owners intend to invest up to $10 million more for working capital for operations of the Philadelphia region's two largest daily newspapers and dominant regional website, which employ about 1,800 people. Also, they expressed confidence in the viability of the Daily News and that it could "return to its circulation success," Norcross said.
None of the investors would be considered the majority owner, Norcross said, but the group would not specify how much each invested.
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 continue to 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.
"I'm more excited about the future of this company than ever before," Osberg said. The new owners are "big advocates of what we do, and the resources that they're going to make available to us to go forward and compete effectively are very welcome and exhilarating."
Reminded that he expressed similar hopes after hedge funds, led by Alden Global Capital and Angelo, Gordon & Co., bought the company out of bankruptcy for $139 million in 2010, Osberg agreed but said he'd spent about half his 18 months on the job working on possible deals at their behest.
PMN's hedge-fund owners were "always looking at various exit strategies," Osberg said. "I think now we're not going to have that problem" under local ownership.
Similar expectations for growth under local ownership were expressed in 2006, when investors led by public-relations executive Brian P. Tierney acquired the properties from the McClatchy Co. newspaper chain for $515 million. But the economic recession that began in December 2007, combined with a heavy debt load, proved to be perilous to many newspaper companies, including Tierney's.
Katz described the ingredients for success as three things: good people, capital, and luck. "You can't discount luck - good or bad," he said. "Brian [Tierney] had a lot of bad luck. As George [Norcross] said, he hit the worst of the seas. Hopefully, this time will be better."
Katz said the $55 million purchase price is the same amount Walter Annenberg received when he sold The Inquirer and Daily News to Knight Newspapers Inc. in 1969. (On an inflation-adjusted basis, Annenberg's $55 million would be worth about $341 million today.)
Ken Doctor, a news-industry analyst with Outsell Inc., said the prices paid for daily newspapers recently are largely one-tenth what they would have been in 2000.
As for what to expect from a new group of local owners, one observer looked to the past. "It's a back-to-the-future moment. Look, I'm talking to you from the Annenberg School of Journalism," said Gabriel Kahn, a professor at the University of Southern California. "We should not be cynical about people in the local community who want to own this asset."
Though large newspaper chains were built over decades and private-equity firms have bought up media assets for pennies on the dollar more recently, "they coincided with the decline of the industry," Kahn said. Recent purchases of the Omaha World-Herald by Warren Buffett and the San Diego Union-Tribune by a California real estate developer echo a time when owning newspapers was a path to wealth, he said.
One problem today: Metro newspapers still depend on print advertising for more than 80 percent of their revenue, Doctor said. At 14.5 percent annual growth, digital advertising is growing faster than television, radio, and other types of media. But daily newspapers are only capturing 10 percent or less of the national digital-advertising pie, he said.
Representatives of Alden Global and Angelo Gordon, who were generally quiet through the sale process, could not be reached for comment Monday.
The new owners will sign a pledge not to interfere with the operations of PMN's three newsrooms. The one-sentence statement reads: "The editorial function of the business shall at all times remain independent of the ownership and control of the company, and no owner shall attempt to influence or interfere with editorial policies or news decisions."
That pledge, which three of the six owners signed Monday, was drafted largely by the newsrooms' leaders: Inquirer editor Stan Wischnowski, Daily News editor Larry Platt, and Philly.com editor Wendy Warren. The other three owners were not available Monday.
"Nothing about this change of ownership will change the way we approach our journalism," Wischnowski said. "We've shown in the recent past with local ownership that a separation of church and state can and must be achieved. I trust that the new owners fully understand that, otherwise they wouldn't be making this sort of investment in the papers, the website, and the journalists."
Katz, once an investigative journalist, did not mince words when he said the new owners would not interfere: "If you're not free to call it as you see it, we're going to have a bad business model."
As a privately held company, PMN did not disclose its financial results, but Katz said its revenues have fallen by half since 2006, when they were $500 million. Norcross said PMN was unprofitable.
"Cynicism or no, we put a lot of our money in this," Katz said. "There was a lot safer places at my age to put money than in a news organization. You know what? This is my way of coming home."
Former Gov. Ed Rendell - who Katz said was the first to call him about finding local investors - and Philadelphia Flyers founder Edward M. Snider, mentioned early on as a possible investor, are not among the new owners.
"People who love newspapers, people who work for newspapers should be excited by these investors, who are committed to make this work as a civic venture," Rendell said.
Philanthropist Raymond G. Perelman, who at one point complained about being excluded from participation, withdrew from the group in mid-March.
Contact Mike Armstrong
at 215-854-2980 or firstname.lastname@example.org, or @PhillyInc on Twitter.