New Jersey fund wins McClatchy newspapers bid
After years of declines in revenue and print circulation, the McClatchy Co., one of the largest and most respected news publishers in the country, announced Sunday that it expected to be purchased by Chatham Asset Management, a New Jersey hedge fund, at the conclusion of a bankruptcy auction.
The announcement, which signals an end to 163 years of family ownership, underlines the growing influence of the finance industry on U.S. newspapers. And it means that a news company known for winning top journalism prizes is likely to become the property of a firm that owns the National Enquirer and other supermarket tabloids.
McClatchy, publisher of the Miami Herald, the Kansas City Star, the Charlotte Observer and its flagship publication, the Sacramento Bee, filed for Chapter 11 bankruptcy protection in February.
Chatham, an investor in the company since 2009, is its largest creditor. In recent months it put together the bid that has been declared the winner in a U.S. Bankruptcy Court auction supervised by Judge Michael E. Wiles, a McClatchy spokeswoman said Sunday.
Chatham, which manages about $4 billion in assets on behalf of its clients, is expected to become the majority owner in the third quarter of the year, McClatchy said, and the publicly traded newspaper will go private. It will not be split up, McClatchy said, its 30 news outlets remaining intact.
In a statement, a Chatham spokesman said the company is “pleased with the outcome of the auction,” adding, “Chatham is committed to preserving newsroom jobs and independent journalism that serve and inform local communities during this important time.”
McClatchy did not disclose terms. In April, the company said it had received a Chathamled bid worth more than $300 million. That offer included the debt assumed by the hedge fund and its partners. Another McClatchy creditor, New York hedge fund Brigade Capital Management, was named in a public filing as a partner of Chatham in the April bid.
The court and regulators must approve the deal. A bankruptcy court hearing on the matter is scheduled for July 24.
Hedge funds and private equity firms have had a growing presence in the news industry, to the chagrin of press advocates who argue that financial firms do not make civicminded stewards of a business built largely on holding the powerful to account.
McClatchy’s troubles extend to 2006, when it bought its much larger rival, KnightRidder, then the secondlargest newspaper chain in the United States, for $4.5 billion, plus the assumption of $2 billion in debt.
From shortly after the merger to the end of 2018, McClatchy’s workforce was cut from more than 15,000 fulltime employees to around 3,300, according to public filings. Chatham took a financial interest in McClatchy not long after its financial troubles began.
The McClatchy chairman, Kevin S. McClatchy, the greatgreatgrandson of its founder, has said the company’s inability to meet its pension obligations tipped it into bankruptcy. The $1.4 billion pension plan, created 75 years ago, was intended to provide money to more than 24,000 current and future retirees.
In a statement, Craig Forman, the McClatchy chief executive, said Chatham would allow the company to continue providing strong news coverage.
“Local journalism has never been more vital,” Forman said, “and we remain steadfast in our commitment to delivering on our mission and continuing to serve our communities.”
Marian Needham, executive vice president of the NewsGuild, the union that represents employees at some McClatchy newspapers, said in a statement that McClatchy needed to adopt existing collective bargaining agreements.
“We are deeply concerned that this venerable newspaper chain — which has won 54 Pulitzer Prizes — will now transfer to the ownership of a hedge fund more known for its drive to maximize profits than for its commitment to producing quality journalism,” said Needham, who is a member of the committee of unsecured creditors in McClatchy’s bankruptcy case.
Hedge funds and private equity firms entered newsrooms during the Great Recession, when readers were migrating toward digital sources of news and local newspapers were losing value. Google and Facebook came to dominate the online ad market, hampering publishers’ attempts to generate the necessary revenue from digital advertising. From 2004 to 2019, roughly half of all newspaper jobs in the United States were eliminated, according to a University of North Carolina study.
But many dailies remained sources of reliable cash flow, making them attractive investments for owners focused on maximizing returns.
Chatham is not a newcomer to the news industry. In addition to being a principal owner of American Media Inc., the parent company of The Enquirer and other tabloids, it is a major investor in Postmedia, the publisher of Canadian newspapers including The National Post, The Montreal Gazette and The Ottawa Citizen.
Chatham is led by Anthony Melchiorre, a Chicagoarea native who once worked at Morgan Stanley, where he led the junk bond division. He set up his hedge fund in Chatham, New Jersey, in 2002.
Chatham has tried to unload The Enquirer. In 2018, American Media announced the sale of the tabloid to the family that founded the Hudson News chain of newspaper and magazine shops. That deal still has not closed.
Journalists employed by McClatchy, as well as the mayors in Lexington, Kentucky; Sacramento, California; and Miami — three cities served by McClatchy papers — pushed for local, civicminded ownership of the chain.
“Even with the cuts it has endured over the past 15 years, The Bee remains the most significant source of original reporting and enterprise in our community,” Sacramento’s mayor, Darrell Steinberg, wrote in a May letter to the bankruptcy court. “It needs to be bolstered and rebuilt, not milked for whatever profit it can still produce.”
“Chatham is committed to preserving newsroom jobs and independent journalism that serve and inform local communities during this important time.”
Statement from Chatham Asset Management