Tuesday, June 10, 2014

The Partnership That Didn't Last Twenty Minutes

Auction winners Gerry Lenfest and Lewis Katz
By Ralph Cipriano
for Bigtrial.net

In the moments after Lewis Katz and H.F. "Gerry" Lenfest won the May 27th auction to buy The Philadelphia Inquirer for $88 million, Katz told Lenfest he wanted his son, Drew, to be a partner in the venture.

According to a source, Lenfest's reply, in the presence of Katz's son, was no way.

Less than 20 minutes in, the Katz-Lenfest partnership was already at loggerheads.

Four days later, when Lewis Katz was killed in a May 31st plane crash, relations between Drew Katz and Gerry Lenfest got worse.

Lenfest, according to the source, didn't pick up the phone to call Drew Katz to tell him he was sorry about his father's death. He didn't even call Drew Katz to discuss Lenfest's future plans for the company, plans that supposedly included Drew Katz taking over for his father.

Instead, on the eve of Lewis Katz's funeral, Gerry Lenfest left the country. He flew to Europe, from where he granted media interviews and issued edicts on what he was going to do with the Inky. Without discussing any of it with Drew Katz.

Drew and Lewis Katz
Lenfest had already been named interim publisher on the day that Lewis Katz and Lenfest bought the newspapers.

Then, when Lewis Katz died, Lenfest announced that Drew Katz would take his father's place on the board of directors of the new company. Without talking to Drew Katz.

Even though the sale wasn't formally supposed to close until June 11th, Lenfest had already taken over. He put his name on the Inquirer masthead as interim publisher. On June 2nd, while he was in Europe, Lenfest announced in an email to all employees that he was bringing back former Inky publisher Brian Tierney as a sales consultant and former Tierney lieutenant Mark Frisby as associate publisher for operations.

Lenfest also announced he was retaining through the transition George P. Loesch, senior vice president of sales and marketing for Interstate General Media [IGM], the parent company that owned the Inquirer, Daily News and philly.com.

Loesch, however, said thanks but no thanks.

Drew Katz had no say over anything.

"Apparently, it got a little hostile," said a source knowledgable about the deal. "They started getting into some bad conversations with lawyers."

On Monday, Drew Katz, through intermediaries, informed Gerry Lenfest that he wanted out.

On Tuesday, they cut a deal.

Drew Katz was going out the door for the same $16 million that his father had originally invested in IGM.

The deal to buy Drew Katz out is scheduled to close tomorrow, the same day the sale of the two newspapers is supposed to go through.

The May 27th auction was supposed to put an end to the feuding amongst Inky owners. It was supposed to be all peace and harmony after Katz and Lenfest bought out their three former partners -- George E. Norcross III, William P. Hankowsky and Joseph E. Buckelew -- for $41.7 million.

Norcross, Hankowsky and Buckelew made money. Their total investment when they were bought out, according to court documents, was $35 million.

Drew Katz, however, was only able to break even on his father's investment.

Lewis Katz didn't expect to win the auction. He was convinced Norcross was determined to keep the papers at any cost. Instead, when the bidding hit $88 million, Norcross dropped out. And Katz and Lenfest overpaid.

"I just said to Gerry walking in, I would have bet anything that I would have been cashing this big check," Katz told reporters and editors at the Inquirer newsroom at 8th and Market, just after he and Lenfest won the auction.

"I really thought George wanted to own it," Katz told Bill Ross, executive director of the Newspaper Guild of Greater Philadelphia.

The next day, when Katz and Lenfest toured the Inquirer printing plant in Conshohocken, Katz told the troops, "I can't tell you what our plans are, because my plan yesterday was to go home with a big check."
Lewis Katz and Gerry Lenfest

Then after the auction, Lenfest and Katz disagreed over a future role for Drew Katz.

When Lewis Katz died, Gerry Lenfest basically staged a coup.

Drew Katz decided to take a hike.

Lenfest, who, just two years ago, was one of six owners who bought the company for $55 million, is now in sole possession of the Inquirer, Daily News and philly.com.

"It's the partnership that didn't last 20 minutes," a source said.

On Tuesday night, in an email to local journalists, Drew Katz confirmed he was getting out.

"Because of the turmoil of the last 10 days, I have  made a decision that it would be in the best interests of the Inquirer, Daily News and philly.com for me to sell my interest in the company," Drew Katz wrote.

Drew Katz, however, had nothing but praise for Lenfest.

"I strongly believe that the organization would be in excellent hands under the ownership of Gerry Lenfest now and in the years to come," he wrote. He denied Big Trial's report of a rift with Lenfest.

"I would also like to emphasize that despite public reports to the contrary, Mr. Lenfest sent me a heartfelt, beautiful note when my father passed away," Drew Katz said in his email. "My father loved Gerry Lenfest and Gerry loved my dad."

Maybe there's a non-disparage clause in that sale contract. Or maybe Drew Katz didn't want to be perceived as somebody who was going out the door throwing mud at the old man who was his late father's business partner.

In his email to local reporters, Drew Katz said his deal to sell out wasn't done.

"No deal has been consummated yet," he wrote.

The Inquirer reached Gerry Lenfest in Berlin. The 84-year-old gallivanting philanthropist would not confirm the deal to buy out Drew Katz.

"It's too early," Lenfest told the newspaper he owns. "There is no agreement."

The Inquirer also was able to confirm an earlier Big Trial report of a last minute snag in an attempt to delay by 30 days tomorrow's sale of the newspapers.

Earlier, lawyer Richard A. Sprague, who represented Lenfest, had told the Inquirer that Norcross, Hankowsky and Buckelew had offered to wait 30 days to collect their $41.7 million.

Then, the Inky did some backtracking.

The newspaper on Tuesday quoted William A. Graham IV, an insurance executive, as saying that Lenfest had unsuccessfully sought a 30-day extension on the sale. "The Norcross group insisted on terms, including an additional $1 million payment, to which Lenfest would not agree, Graham said," according to the Inquirer.

A source close to the Norcross team disputes the Graham account. The source says in the immediate aftermath of Lewis Katz's death, Norcross, Hankowsky and Bucklelew offered to make whatever accommodations Drew Katz and his family needed. That's the offer Sprague was talking about in the Inquirer.

The offer to accommodate Drew Katz did not extend to Lenfest.

"Mr. Graham's comments are untethered from reality," said the source close to the Norcross team.

There's one other angle to the Inky deal. At a press conference after the $88 million auction, Lenfest had announced that he and Lewis Katz would be seeking additional new partners. The guys who had just overpaid decided it was time to pass the hat.

Drew and Gerry
Graham told the Inquirer he was one of 10 new investors that Lewis Katz had approached before his death who were asked to pledge $1 million to the new ownership group. Graham said he intended to honor that pledge.

So, if Graham and the Inky are to be believed, our two daily newspapers are in the process of bringing aboard 10 new rich guys as owners. To replace the five rich guys who've recently departed the sinking ship.

Talk about a great investment. It's like taking out a $1 million insurance policy against bad press.

And hey, if you happen to die while you still own the Inky, they'll canonize you in newsprint, for no extra charge.

In the Inky newsroom, however, they're going to need a tote board to keep track of who they can't piss off.

10 comments:

  1. Well ralph with that said is safe to say its all down hill from here on again the working man will get screwed.

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  2. The paper itself is such a pathetic remnant of what it was. As far as these deals go however there is some deep stuff going on that goes back decades in Camden.

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  3. Why do I think that George Norcross will end up staying on after all is said and done at the Inquirer. tatemen. Why did Lenfest go to "Europe" Has anyone verified that statement.

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    1. That right there tells u all u need to know about lenfest and his ability to right this ship

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  4. Someone please assure me there was no foul play in Katz's death?

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