The fate of four Washington daily papers could become clearer as the July 1 deadline approaches for bidding on assets of the bankrupt McClatchy Company.
The likeliest bidders for the Sacramento-based chain are all based at least one time-zone away, which would sever the 163-year connection of McClatchy to the Pacific Coast. Olympia and Tri-Cities cities news staff are moving out of downtown offices as McClatchy management breaks leases nationwide, and McClatchy pensioners waiting to learn the fate of their pensions.
Many of these issues will be decided 2,800 miles away, by Judge Michael Wiles in the United States Bankruptcy Court for the Southern District of New York, where the chain of 29 papers filed for protection under Chapter 11 of bankruptcy law on Feb. 13.
McClatchy declared assets of $946.5 million and liabilities of $1.6 billion when it filed. Unless the company pulls off a last-minute deal with its creditors, bids from potential purchasers are due July 1. On July 8, the court will oversee an auction among the most competitive offers.
More than 20 potential bidders had, months before auction deadline, signed the necessary paperwork to begin the process, McClatchy CEO Craig Forman said in a rare public statement permitted by the bankruptcy court.
The company-appointed chief of the restructuring process, Sean Harding, said he expects the industry’s biggest players will compete to add McClatchy’s 29 papers to their portfolios, as they continue consolidating newspaper ownership.
“In my opinion, the strategic bidders that operate in the newspaper industry appreciate that the only pathway to longevity is through consolidation,” Harding told the court in a statement of McClatchy’s current financial status.
“The industry’s movement toward consolidation predates the commencement of the Debtors’ chapter 11 cases, and the impacts of the COVID-19 pandemic are likely to accelerate such consolidation in order to ensure the survival of many industry players,” said Harding, a senior managing director at FTI Consulting, a global management consulting firm.
Translation: In an era of smaller profit margins, the financiers who now drive the news business want the scale economies that come with owning lots and lots of papers. That means you can print multiple newspapers from one press instead of several, and operate one back office of accounting, HR and administrative staff. That makes papers more profitable, and if papers are clustered near each other, they save even more expense by cutting local news staff and relying on a regional news bureau to write general stories that will work in numerous newspapers.
This is the pattern across the U.S. In 2004, the largest 25 companies owned one-fifth of all U.S. newspapers. By 2018, they owned one-third, reported the University of North Carolina’s expert on news deserts, Penelope Abernathy.
New Jersey-based Chatham Asset Management, a hedge fund, is McClatchy’s major creditor and filed a $300 million offer for the company that will be among those considered. Observers expect Chatham would, if successful, soon sell McClatchy.
News industry analyst Ken Doctor has predicted McClatchy’s 29 papers will, through the auction or maneuvers just after the auction, be added to the growing portfolios of mega-chains like Gannett (260 daily papers), Lee Enterprises (75 dailies) or MediaNews Group/Alden Global Capital (40 dailies).
Gannett Company sits in the Washington, D.C., metro area; MediaNews Group in Denver, which is controlled by Alden Global Capital in New York City; Lee Enterprises in Davenport, Iowa; and Chicago-based Tribune Publishing, which is also strongly influenced by Alden Global Capital.
McClatchy’s role as an anchor of its newspapers’ downtowns is already changing. In past rounds of newspaper consolidation, financiers dismissive of journalism’s community service mission have said the most valuable asset many hold is their buildings in desirable downtown locations. Tribune Publishing, for instance, sold its landmark Chicago Tribune Tower in 2016 and recently added a distressed asset real estate expert to its board. That change in downtown landscapes is accelerated by the COVID-19 pandemic, during which many newspapers have been largely produced outside their downtown offices, though few have declared they will never return.
McClatchy has filed notice with the bankruptcy judge that it is abandoning leases, announcing newsrooms may or may not later move back into the hearts of the cities they cover. Among those are The Miami Herald, The State in South Carolina’s capital city and three papers in California, including The Modesto Bee. While the Tacoma and Bellingham newsrooms are staying put, McClatchy has canceled the lease on The Olympian’s free-standing building at 522 Franklin St. to move into a four-suite building nearby, confirmed Director of PR Jeanne Seagal. McClatchy has sold the Tri-City Herald’s building, and the newspaper will move next month, she said.
The third change Washington’s McClatchy communities face is McClatchy’s petition to turn its pension obligations over to the U.S. government’s pension rescue agency.
McClatchy’s 29 papers with a history of 54 Pulitzer Prizes won’t necessarily be sold to a single buyer, said Bankruptcy expert Eric Snyder, partner at Wilk Auslander, a Manhattan firm.
If bidders on a single local paper guarantee local workers will keep their jobs and if bids for subsets of the chain add up to the same or more money than what creditors will get if they simply sell the whole chain to one buyer, it is possible one McClatchy paper could revert to local control.
So far, the only publicly announced effort to break off a piece of McClatchy, which owns a minority interest in The Seattle Times, has been in Sacramento.
Mayor Darrell Steinberg has since May said there is a well-financed local bidder who will seek to peel off at least the Sacramento paper, if not Modesto and Fresno, too. Bankruptcy court rules strictly control public release of bid details, so it has so far been impossible to confirm his claim.
Editor’s Note: This story was updated to eliminate a confusing reference to the difference between senior-level versus other McClatchy pensioners, to correct that McClatchy did not run out of cash and to add 4 to McClatchy’s Pulitzer Prize tally.