Group of Local Investors Emerges As Likely Buyer for Philly Papers

PHILADELPHIA _ A deal to sell The Philadelphia Inquirer and Philadelphia Daily News to a group of local investors could be announced as early as Tuesday, according to people familiar with the sale.

Talks between Philadelphia Media Holdings LLC and McClatchy Co. went into the evening Monday, as the group’s organizer, Brian P. Tierney, prepared to dine at the Four Seasons hotel with P. Anthony Ridder, chairman of the papers’ current owner, Knight Ridder Inc., and the papers’ publisher, Joe Natoli.

The papers, along with other publications and philly.com, are expected to fetch more than $500 million. The local investors involved in Philadelphia Media Holdings plan to put in at least $200 million of their own money, with Royal Bank of Scotland (owner of Citizens Bank) and other lenders financing the rest. Tierney has said all the investors would be identified after a deal is signed.

If McClatchy accepts their bid and their financial agreements, members of Tierney’s group have said they plan to concentrate on improving marketing and ad sales at the paper, and that readers shouldn’t expect immediate, radical changes in the papers’ content. Like other would-be owners, they expect to continue publishing both newspapers, but will look at ways to cut costs.

Such a sale would be a rare transfer of media assets from a big, publicly traded corporation to independent local investors, reversing the long trend toward media consolidation. If it wins the papers, Philadelphia Media will have beaten large newspaper operators (MediaNews Group, Daily News L.P.) as well as private equity firms (Onex Corp., Yucaipa Cos., Avista Capital Partners).

Local ownership would also put the papers in the potentially delicate position of writing about business ventures and government decisions in which the owners have a major stake. The newspapers’ last private owner, Walter Annenberg, was accused by Philadelphia Republican leaders of engineering the Democratic Party’s dominance of city government. Annenberg, a Republican who was later appointed ambassador to Britain by President Richard M. Nixon, sold to a forerunner of Knight Ridder Inc. in 1970.

Under pressure from restive shareholders, Knight Ridder sold itself to McClatchy earlier this spring; McClatchy is reselling the Philadelphia papers and 10 others.

One person involved in the transaction called the possibility of a sale to anyone but Philadelphia Media “remote.” However, another source, equally involved, said it was still possible that “things might not come together.”

The biggest single investor in the group is Bruce E. Toll, a developer and co-founder of the Toll Bros. home-construction company. Toll plans to put up $25 million, according to people familiar with the group. Toll owns the Reedman-Toll Auto World and Roberts Auto Mall dealerships and recently sold shares worth more than $30 million in UbiquiTel Inc.

Last month Toll told The Inquirer he wanted to buy the papers, in part, so he would see more local business stories in the Inquirer’s business section.

Other investors include Leslie Brun, the founder and chairman emeritus of Hamilton Lane investment advisory firm. “I think it’s a good economic investment, and, secondly, it means a lot to this community to have local ownership of newspapers,” Brun said.

Former Inquirer publisher Sam McKeel, a paid adviser to Philadelphia Media, said he urged the investors “not (to) cross the line into the journalistic side” but instead to concentrate on business operations.

“Both of these guys are probably from my tribe, but I can’t see either (Toll or Tierney) trying to make a political statement with the paper,” said radio commentator Michael Smerconish. “They’re businesspeople. They’ll run it like a business.”

Beer and soda distributor Harold Honickman, who said he declined an invitation to participate in the Tierney group, predicted it will keep publisher Natoli and at least some other senior managers in place. Honickman, the richest man in Philadelphia, according to Forbes magazine, says he turned down an opportunity to invest because he’s more interested in short-term opportunities.

People familiar with the group say Aramark chairman Joseph Neubauer is among the more prominent public-company executives on the investors’ list. Neubauer has declined to comment.

A potential competitor, Evening Bulletin publisher Thomas G. Rice, said he was excited, as a Philadelphian “by the prospects of local ownership,” though as a rival “I would have preferred another distant corporate parent.”

But others raised concerns about how the owners would use their control of the newspapers and Web site.

“There are serious potential conflicts of interest” when businesspeople own local papers, said Joshua Breibart, spokesman for MediaTank, a Philadelphia-based advocacy group that lobbies for public access to communications media. “The good news is the papers won’t be subservient to Wall Street. The bad news is they will be subservient to local real estate interests.”

Tierney has said the group will not interfere in the papers’ news coverage.

A look at other recent newspaper sales shows it’s not unusual for talks to drag on for a few days.

On Jan. 24, 2005, investment bankers presented Pulitzer Inc. with two competing all-cash bids.

Both bids were for $62 a share. But one buyer was ready to pay; the other asked for extra time. Investment bankers for Pulitzer convinced the ready bidder, Lee Enterprises, to sweeten its offer to $64 a share. The deal was completed and announced on Jan. 29, five days after the bids were in.

On March 9 of this year, Knight Ridder received two proposals _ one from McClatchy, one from a group of private-equity firms. Although McClatchy’s bid was more than 10 percent higher than the other, negotiations continued for three days. McClatchy agreed to add a little cash to the mix. The deal was announced the following morning, four days after bids were in.

The Philadelphia deal, though smaller, has already taken longer to close.

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(Knight Ridder Newspapers correspondents Thomas Ginsberg, Jane Von Bergen and Bob Fernandez contributed to this report.)

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