Posted by chicagomedia.org on June 25, 2009 at 10:34:11:
Sun-Times fights to not cash out
Parent company seeks buyer to provide needed capital as it struggles in bankruptcy
By Michael Oneal and Julie Johnsson | Tribune reporters
June 25, 2009
Having faced the threat that it might go extinct by the middle of July, Chicago's Sun-Times Media Group Inc. has managed to slow the alarming rate at which it was burning cash before its Chapter 11 bankruptcy filing in late March.
But the city's No. 2 newspaper company is still under the gun to forge a deal that will give it life outside of bankruptcy court, and many observers said that finding an investor willing to rescue the company remains a major challenge.
In a telephone interview Wednesday, Sun-Times Media Chairman Jeremy Halbreich said he is talking to a number of potential, unnamed suitors but made no assurances that a deal would close soon.
What has changed, he said, is that the company, which also owns a string of suburban newspapers, including Pioneer Press, has arrested a downward trajectory that pointed it toward running out of cash this summer, buying it more time to work toward a solution.
"We've shown a very significant improvement [in cash flow] in a very short period of time," Halbreich said. "That opens up a whole panorama of options for this company."
From Dec. 31 until it filed for Chapter 11 on March 31, Sun-Times Media burned through $58 million in cash, or about $4.5 million a week, bankruptcy court documents show. Projections indicated it would run out of cash by mid-July. But since its filing, it has stanched the bleeding through cost cutting and other measures, adding $4.5 million in cash to its coffers over two months. It finished May with $25.5 million, still a thin cushion.
Halbreich has been selling the turnaround story to potential suitors. But from a buyer's perspective, the problem is that many of the moves Sun-Times Media has made are transient or enabled by bankruptcy protection.
Sun-Times management has pressed unions for a temporary 15 percent cut in compensation, which will expire in the event of a sale. It also has halted payments to a series of pension funds, and documents show it has delayed accounts payable. Moreover, the most recent cash statements reflect only a portion of the $1 million or so Sun-Times Media must pay each month to the lawyers and bankers assisting with its bankruptcy case.
"They've bought time," said Tom Thibeault, executive director of the Chicago Newspaper Guild, which represents about 370 workers at Sun-Times Media. "The workers have taken cuts so that the company can exist long enough so that a favorable sale can be done."
The company has a small window of time to close a deal, said restructuring expert Bill Brandt. If no buyer is forthcoming, management will need to ensure they have sufficient money left to cover severance and other shutdown costs.
Despite its woes, Sun-Times Media has drawn interest from a list of potential buyers, a tribute to its role as one of Chicago's most influential cultural institutions.
Fred Eychaner, the reclusive media giant behind Chicago's Newsweb Corp., has talked to Sun-Times Media, one source said, though Eychaner could not be reached for comment. Former Helene Curtis Chief Executive Ron Gidwitz showed early interest but said he got too busy to follow through.
Private-equity stalwart Jim Tyree, chairman of Chicago's Mesirow Financial Holdings Inc., is trying to assemble a group to buy the company and has talked to moneyed investors such as Chicago Blackhawks owner Rocky Wirtz, other sources said. Tyree declined to comment.
Platinum Equity, a Beverly Hills, Calif.-based private-equity firm that in March bought the San Diego Union-Tribune with the involvement of Canadian publisher David Black, has checked out Sun-Times Media, several sources said. But they downplayed Platinum's interest. Black is no relation to jailed former Sun-Times chief Conrad Black.
Unlike the Union-Tribune, which is the No. 1 paper in a traditionally vibrant, growing market, the Sun Times trails the Chicago Tribune in a market that is losing population. Platinum also viewed the Union-Tribune's well-placed real estate as hedge in case its plans to turn around the paper failed.
"These guys kick the tires on a lot of deals," the source said. "Whether they pull the trigger is the difference."
Workers at the Post-Tribune, a daily newspaper in northwestern Indiana, are trying to buy their paper from parent Sun-Times through an employee stock ownership plan. They've hired an adviser who specializes in employee ownership to help create a business plan and court investors.
Halbreich said Sun-Times Media intends to use a so-called 363 sale to break itself into a "good" company and a "bad" company. That would allow a buyer to start with a fresh slate, leaving behind any assets that don't add value.
The company also believes it can leave behind its only significant liability, a $600 million federal tax bill left over from previous management. Any proceeds from a sale would be used to pay the Internal Revenue Service.
What a buyer has to contend with, however, is the company's ongoing operating problems. The Sun-Times has consistently drawn a loyal audience of urban and blue-collar readers who have viewed it as a scrappier, less stuffy alternative to the Tribune. And the company has developed a market in the suburbs by assembling a string of smaller, largely profitable community papers stretching from the Wisconsin border to northwest Indiana.
But the Sun-Times gets less national advertising than the Tribune. And it has both fewer readers and a less desirable demographic. Its suburban papers help, but they rely on real estate and auto ads, which have dropped off the table.
The Chicago Tribune's parent, Tribune Co., is also in Chapter 11. But that's because it was overwhelmed when real estate magnate Sam Zell piled on more than $8 billion in debt to take the company private in 2007, not because its newspapers are losing money. As of May, Tribune Co. had $702 million in cash, documents show.
A Sun-Times buyer would have to be willing to fund losses indefinitely. It would have to find a lender willing to finance such a black hole during a credit crunch. And even if the buyer did put together a credible deal, the Sun-Times still would emerge from Chapter 11 as the No. 2 competitor in a troubled business.
"Nobody is going to pay money to take an annuity stream of losses off the seller's hands," said Mike Simonton, an analyst with Fitch Ratings in Chicago.
"If we were just sitting here with the same burn rate we had in early February," attracting a buyer would be near impossible, Halbreich answered. "So that's where we're focusing our attention."