March 16, 2016

My first rule for covering newspaper bankruptcies is never to be too sure in advance of the outcome. Postponements, revised bids and new legal issues at the 11th hour happen with some frequency.

That said, with “final” bids due later today, Digital First Media is a good bet to win the three-way auction for Freedom Communications’ two newspapers (California’s Orange County Register and Press-Enterprise of Riverside) and could seal the deal by the end of the month.

Digital First has the high initial bid ($45.5 million) and could send back for more money if necessary from its hedge-fund owner, Alden Global Capital.

Newly minted Tribune Publishing CEO Justin Dearborn volunteered to analysts in an earnings conference call two weeks ago that there was potential for the company, with limited capital available, to walk away if the price gets bid up. You could read that as a signal of retreat.

Then yesterday the Justice Department’s indicated in a letter to Freedom’s attorney that a sale to Tribune would raise “serious” antitrust issues. That’s not to say Justice would block such a deal but rather, at a minimum, would take a close and time-consuming look.

The short letter also indicated there were no such concerns about Digital First or a local group trying to put together a bid.

Should Tribune lawyers choose, they might now reasonably ask for an extension to consider the Justice intervention and reassess.

Another wild card in the mix is pension obligations. None of the bidders has indicated willingness to take on Freedom’s pension plan. That exclusion has been typical in newspaper acquisitions for several years now.

So responsibility would shift to the federal Pension Benefit Guaranty Corp., which assumes liabilities of busted private pension plans. There have have been plenty of those in the newspaper industry and in a broad array of other businesses.

The underfunding of Freedom’s plan is unusually high ($155 million) and former owner Aaron Kushner missed $15 million in required payments. Thus the Pension Guaranty Corp could move to get a share of the sales price.

Finally, keep in mind that the point of bankruptcy proceedings is to get the best possible deal for creditors and to let the business emerge on the other side with a reasonable chance of success. It’s not obvious to me what that outcome would be — though it may be all in day’s work for the judge.

The Justice Department intervention raises another question, this one unlikely to play out in court. Is the move political?

My fellow media analyst Ken Doctor seemed to think so, concluding his most recent piece on the auction:

How did DOJ come to send that letter, and to send it with its maximum-effect, two day-before-auction timing? Who, we can ask, adding to the screenplay-worthy series of Southern California newspapering events, may have had the juice to prompt DOJ to squeeze Tribune at this opportune time?

Doctor is alluding to evidence that influential Democrats have their knives out for Tribune. He and I and several others were asked by former U.S. Rep. Henry Waxman in early 2014 to comment on the unfavorable terms under which Tribune was being spun off from its parent broadcast company with burdensome debt and expensive lease arrangements on real estate.

Nothing much came of Waxman’s protests, but the procession of potential local bidders for the Los Angeles Times may have friends in high places too.

It would make a good conspiracy-style movie, as Doctor suggests, if the fix is in, but I think he is adding two plus two and getting seven.

First off, a shot-across-the-bow communication from antitrust is not so unusual. In fact, one of several scholarly articles I sampled this morning suggests that is actually more typical than a ruling that will provoke a lawsuit.

Legal scholars — though hardly anyone else — have also long been intrigued by the general question of whether antitrust actions are influenced by politics.

You’ll find opinion on both sides, but the consensus seem to be that there is not much in the record to support the theory. Clinton did not markedly change course from his Republican predecessors. George W. Bush did not break sharply from Clinton.

And Obama, despite promises to “re-invigorate” antitrust enforcement, has given little sign after seven-plus years of having done so.

The egregious cases that prompted the original antitrust act in 1890 and price-fixing scandals prevalent 50 years ago but are rare now.

The antitrust division along with the Federal Communication Commission, has stayed active on broadcast mergers, blocking or partially blocking both cable deals and consolidations of local station groups within the last year.

But except to intervene in revisions of Joint Operating Agreement terms once or twice, Justice has done little about newspaper deals for decades. Some would even question how much a big media company could stifle competition anymore with so many more news sources and advertising options available.

Still, point taken, that owning the three dominant papers in populous Southern California — as Tribune Publishing would should it win the auction — might be the exception.

That’s a good topic for another day, however the auction is resolved in coming weeks — if indeed it is.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
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