Friday, January 3, 2014

Feuding Inky Owners Seek Auction

By Ralph Cipriano
for Bigtrial.net

The new owners of The Philadelphia Inquirer are at it again, suing each other in the courts of two different states.

First, Lewis Katz, leader of a minority group of owners, filed a motion in Philadelphia Common Pleas Court, seeking to dissolve Interstate General Media [IGM], and publicly auction off the company that owns the Inquirer, Philadelphia Daily News and philly.com.

Then George Norcross III, leader of a majority group of owners, filed a petition in the Court of Chancery in the State of Delaware that would compel a private auction of the company that would be restricted to the current owners.

The war in two state courts was revealed by the Norcross side in a letter made public from owners Norcross and William P. Hankowsky to Katz. In the letter, dated Jan. 3, owners Norcross and Hankowsky accuse Katz of putting the survival of the city's only two daily newspapers at risk.

Norcross and Hankowsky wrote Katz that they had hoped to avoid going to Delaware's Chancery Court, "but your surprise decision to file a motion to dissolve the company risks not just the progress the company has made, but presents a real threat of another bankruptcy and additional job losses for our employees."

"It is clear from your actions," Norcross and Hankowsky wrote Katz, "that you are focused, and have been for many months, on creating a crisis in the company, risking the progress the company has made since its purchase and threatening the jobs of IGM employees."

In the letter to Katz, Norcross and Hankowsky detail a half-dozen settlement proposals that they claim were rejected by Katz.

"You have referred to referred to the newspapers and philly.com as 'public trusts,' important to protect and preserve," Norcross and Hankowsky wrote Katz. "It is past time to begin treatment of them as such. We have taken this action because we cannot let the future of our company, our employees and readers be held hostage by your unwillingness to act in its best interests."

Among the proposals rejected by Katz, Norcross and Hankowsky said, was an offer made last Oct. 13 to purchase Katz's shares for "a 12 percent premium over your initial investment," or $29 million, a $3 million increase over the initial investment of $26 million.

The letter from Norcross and Hankowsky, along with supposedly rejected settlement offers, was distributed to IGM employees today in preparation for a public announcement.

In a separate letter to IGM employees, Norcross and Hankowsky said there was a big difference between the two proposed auctions.

"Mr. Katz had made it clear he is seeking a public auction of the company, which would cost the company millions of dollars in legal and banker's fees per a period of months," Norcross and Hankowsky wrote. "This is in addition to the money being spent to defend against the lawsuit he [Katz] filed against the company last year."

"A public auction would be open to third party bidders, including hedge funds and others who may not want to keep all three outlets open," Norcross and Hankowsky wrote. "There is a real possibility that a winning bidder could saddle the company with too much debt, just as a previous ownership group under Brian Tierney did."

Tierney put together an ownership group that bought the two papers and philly.com website in 2006 for $515 million; six years later, those assets were worth $55 million at a subsequent auction.

You have to wonder if there is a public auction, whether Tierney will try to get the band back together again. Maybe chat up the Philadelphia carpenters, tap that pension fund again, and round up more usual suspects for another run at owning both papers in town.

"In contrast, we are seeking a private auction of the company," Norcross and Hankowsky wrote, with its assets sold to either the majority owners, or the minority owners. We believe this is the best way to protect the company and the progress we've made."

"We are enormously proud of the progress we have accomplished together in a short period of time," Norcross and Hankowsky wrote IGM employees. "The company has gone from losing $50,000 a day to being on the path to profitability."

A private auction, the majority owners said, "is the only way to break the management stalemate we face."

The feuding owners were in court last year over the decision by Publisher Bob Hall to fire Inquirer Editor Bill Marimow. Katz filed suit first in Philadelphia Common Pleas Court; Norcross countersued in the state of Delaware's Chancery Court, where IGM was incorporated.

Philadelphia Common Pleas Court Judge Patricia McInerney decided she had jurisdiction. Then Judge McInerney ruled that both Hall and Marimow should return to office, insuring the stalemate among the feuding owners would continue into the New Year.

Hall was supposed to retire by New Year's Eve; Marimow has a contract to stay on until the end of April 2014.

"Thus, the immediate prospect is that the paper could find itself with no publisher and no editor," according to the Norcross and Hankowsky filing in Delaware Chancery Court.

In rejected settlement proposals, both Marimow and Hall would have been paid through the end of 2014. In addition, Inquirer City Editor Nancy Phillips, Katz's girlfriend and the recruiter who brought Marimow back for a second stint as Inquirer editor, would become a reporter and return to the protection of being a member of the Newspaper Guild.

An immediate search was supposed to begin for a new publisher and Inquirer editor.

Now, judges in two states will have to figure out which court has precedence. And whether to hold a public or private auction.

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