March 12, 2010

Group confident it can buy Blethen papers this year

TUX TURKEL

— By

Staff Writer

Three weeks before a target date for completing the purchase of Blethen Maine Newspapers, the prospective owners say they are making progress in securing the financing they need.

''We're still confident we can get the deal done by year's end,'' said Richard Connor, senior operating partner of the investment group set up to buy the media properties.

The group, Maine Media Investment LLC, signed a purchase agreement last month with Blethen to buy the Portland Press Herald/Maine Sunday Telegram, the Kennebec Journal in Augusta, the Morning Sentinel in Waterville and other assets.

The sale is contingent upon the completion of financing, a task made more difficult in the deepening recession. Maine Media also has been talking with Blethen's largest union about contract concessions that Connor's group says it needs.

News this week that the Tribune Co., which owns newspapers such as the Chicago Tribune and Los Angeles Times, had filed for Chapter 11 bankruptcy protection cast a darker pall over an industry suffering from declining ad revenue and competition from the Internet.

That climate is making lenders suspicious about newspaper investments, Connor acknowledged, but his paper, The Times Leader in Wilkes-Barre, Pa. -- where he is publisher -- is seeing a marginal circulation increase this year and is on track to post the highest profit, when adjusted for inflation, in its 100-year history.

Connor said his message to potential investors is that growth opportunities for small and regional newspapers are different from those of national chains saddled with high debt.

''We say, 'If we can do this in Wilkes-Barre, Pa., why don't you think we can do this in Portland, Maine?''' he said.

Connor was in Washington on Wednesday meeting with potential financiers. He was joined by former Defense Secretary William S. Cohen, a partner in Maine Media Investment. The other partners are business associates Robert Baldacci, a real estate developer and brother of Maine Gov. John Baldacci, and Michael Liberty, a former developer.

Connor said he and the group have been talking to a variety of investors, including three Maine banks. Asked whether the group was attempting to obtain a syndicated loan, whereby two or more banks underwrite to spread the risk, Connor said that decision would rest with lenders.

Funding ultimately might come from several sources, Connor said, including equity investments from the partners. He said it's possible, however, that one Maine bank could provide senior debt. In that case, the bank would provide the largest proportion of funding and have repayment priority over other loans.

''Banks in Maine have money to lend,'' Connor said. ''They have the full capacity to do what we need to get done.''

That possibility makes sense to Matthew Kelley, a senior research analyst who follows banks in Maine and the Northeast for the Alabama-based Sterne Agee brokerage firm.

Local banks have a better understanding of local businesses, he said. They also present a more attractive source of capital for smaller investment groups than the bond market.

Bond yields are at historic highs because of the perceived risk of default, and because of the global credit and liquidity crisis. Smaller, high-risk investment groups that borrow money in this market need to pay that high debt service, Kelley said. That hurts the profitability of their investment.

''They need financing,'' Kelley said of Connor's group, ''and they have a better chance of securing it from local institutions than from the bond market.''

One element creating uncertainty is an understanding among the parties that the sale should close by Dec. 31.

Connor declined to speculate on what would happen if the sale isn't completed by year's end. Charles Cochrane, the Press Herald's publisher, said that date is a ''target'' set between Blethen and Connor, and not a deadline. But he said it is Blethen's desire to make a clean break at year's end for operational reasons, plus unspecified tax considerations.

The company hasn't made a decision about what to do if financing is held up until 2009, Cochrane said.

''The parties would have to have some discussions about where to go from there,'' he said.

Another factor critical to the sale is the endorsement of the Portland Newspaper Guild, which represents roughly 350 workers in Portland and Waterville.

Connor has been meeting with union officials and their consultants to hammer out the framework of a new contract that would give Maine Media Investment more flexibility and lower operating costs. Connor is set to meet with the guild again on Friday, according to its president, Tom Bell.

Negotiators already have agreed to some fundamental changes, such as a longer work week and a pay freeze, Bell said. In exchange for concessions to the current contract, workers would receive a stock ownership plan, in which they'd get a stake in future profits and a voice on the company's board.

As the end of the year nears, union members will have less time to digest the proposed contract changes and vote on the concessions. Rejection of the changes probably would kill the sale, Bell said.

It also would keep alive a legal dispute over whether a buyer must inherit the current labor agreement between the guild and Blethen. Arbitration is set for Jan. 13.

Staff Writer Tux Turkel can be contacted at 791-6462 or:

tturkel@pressherald.com

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