Posted by chicagomedia.org on August 26, 2009 at 10:23:33:
Hedge fund buys Chicago Reader parent in auction
By Michael D. Oneal
Tribune staff reporter
2:48 p.m. CDT, August 25, 2009
A New York-based hedge fund took control of Chicago Reader parent Creative Loafing Inc. Tuesday, winning a bankruptcy court auction against the alternative media chain's founding family.
Atalaya Capital Management won the auction with a $5 million bid and indicated its intention is to keep the company's six papers, including the Reader, up and running, said Tampa attorney Chad Bowen, who ran the auction on behalf of the debtor.
Tampa's Eason family, which founded Creative Loafing and bought the Chicago Reader in 2007 with a $30 million loan from Atalaya, argued to the court that the hedge fund would only seek to liquidate the chain of six papers to recover its money.
But Atalaya has taken several steps that indicate it plans to make a go of it as a publisher. The hedge fund has hired long-time Chicago journalist James O'Shea, former managing editor of the Chicago Tribune and editor of the Los Angeles Times, as an editorial advisor and board member. It also has added Richard Gilbert, a former president of the Des Moines Register, as interim CEO.
O'Shea said he is confident the new ownership plans to fund growth at Creative Loafing's six titles, including the Reader, despite the perilous downturn in advertising revenue that has plagued the entire industry.
"They've done a lot of analysis about the company," O'Shea said of Atalaya. "They're serious about this. If they (weren't) I'd have said get somebody else."
The Reader, which was founded in 1971, has long held a prominent niche in Chicago's media landscape by combining often-incisive long-form journalism with a comprehensive set of entertainment and cultural listings. But the last two years have been especially difficult ones. Creative Loafing bought the Reader and its sister Washington City Paper in 2007 to fulfill Chief Executive Ben Eason's dreams of building the second-largest publisher of alternative weeklies in the nation. He already had four titles in Tampa, Atlanta, Charlotte and Sarasota, Fla. Adding Chicago and Washington doubled the company's overall circulation to almost 500,000 copies weekly.
But Eason's big bet came just as the market for newspaper advertising began its historic skid. Papers generally began to see big declines in revenue as advertisers slowed spending or shifted dollars to the Internet. Weeklies like the Reader were especially hard hit since much of their revenue came from classified ads, which have rapidly been gravitating to Web sites like Craig's List. It didn't help that the Chicago paper faced new competition from emerging publications like Time Out Chicago and RedEye, the Chicago Tribune's free daily.
After rounds of cuts and layoffs at its various papers, Creative Loafing filed for Chapter 11 protection in September 2008 with Atalaya as its biggest creditor. The court eventually set up an auction for the company and the Easons and Atalaya were the only bidders. Atalaya's $5 million bid easily topped the Eason family's bid of $2.32 million, Bowen said.
What remains unclear is how Atalaya thinks it can turn a bankrupt chain of weeklies into a profitable and growing enterprise. Although there are signs that the national decline in advertising spending is bottoming out, even the strongest newspaper companies are having trouble envisioning how they will survive in a future increasingly defined by digital publishing.
Bowen said many of Atalaya's filings before the U.S. Bankruptcy Court in Tampa were dealt with "in camera" -- meaning out of the public's view for competitive reasons. O'Shea said he will advise that revival start with adding people back to the editorial staffs strategically to improve the product and create new opportunities for revenue.