McClatchy Co.’s new owner will keep all employees and most senior leaders and honor existing union contracts while continuing to operate news organizations in 30 U.S. markets, according to an agreement filed Friday in federal bankruptcy court.
Chatham Asset Management, a New Jersey hedge fund, will pay $312 million for the nation’s second largest local news company, which has been controlled by the founding McClatchy family for 163 years.
CEO Craig Forman and board chairman Kevin McClatchy, the great-great grandson of the company’s founder, will depart once the sale is final, according to the agreement approved by the McClatchy board of directors and filed in U.S. Bankruptcy Court for the Southern District of New York.
“While it will be humbling to pass the torch, we want to thank our employees, readers, communities and Chatham for recognizing the value of the public-service role of local journalism and supporting its mission,” Kevin McClatchy said in a statement.
Chatham’s was one of two binding bids submitted for the company earlier this month. A second bid, from the hedge fund Alden Global Capital, proposed to cut around 1,000 jobs — more than a third of the 2,800 employees listed in the company’s first-day bankruptcy filing — and was valued at about $100 million less than Chatham’s, according to a court filing later Friday by McClatchy’s restructuring adviser.
Alden would not commit to preserving current salary and benefits for employees and would have forced McClatchy to reject its collective bargaining agreements or obtain a waiver from its unions, wrote Sean Harding, senior managing director for FTI Consulting.
Under the agreement submitted to the court, Chatham would name a board of directors and CEO for the new company, which will be privately held. All other senior executives will remain.
“Today’s agreement brings McClatchy one step closer to a future on strong financial footing where it can continue to provide necessary, civic-minded journalism to local communities nationwide,” Chatham said in a statement.
Judge Michael E. Wiles is scheduled to consider the agreement at an Aug. 4 hearing. The agreement calls for all parties to make a reasonable effort to close the sale no later than Sept. 4.
Friday’s filing by McClatchy spelled out for the court the terms of Chatham’s bid, which was submitted earlier this month. Current employees’ salary and benefits will remain unchanged and Chatham will recognize employees’ years of service. The new company also will honor current collective-bargaining agreements, McClatchy said in a statement.
Alden, which owns Colorado-based MediaNews Group and about a third of Tribune Co., filed a last-minute challenge to Chatham’s bid before a scheduled July 8 auction. The judge rejected the motion, but noted any dispute about the winning bid might come before him again in court if challenged. The deadline for objections is Wednesday.
Chatham, an investor in McClatchy since 2009, turned $263 million of the company’s debt into what is known as a credit bid and added nearly $49.2 million in cash, according to the terms of the agreement presented to Wiles.
Brigade Capital Management, an investment firm that holds the largest amount of McClatchy’s most protected debt, joined Chatham’s bid, but will not have an ownership stake in the new company. The debt refinancing terms, however, require two board seats independent of Chatham.
If the sale is approved by the judge and finalized, the new company will have shed its costly legacy pension obligation and restructured its crushing debt, much of it tied to McClatchy’s 2006 purchase of the larger Knight Ridder chain.
“This transaction is a key milestone in our exit from the Chapter 11 process,” Forman said in a note to employees late Friday. “It places our important organization in the hands of a new owner who is familiar with our business, having been an investor for more than a decade. Importantly, the agreement outlines that the entirety of McClatchy will move seamlessly to the new ownership structure.”
Like the rest of the local news industry, a new McClatchy still faces daunting economic challenges.
One industry analyst calculated that McClatchy lost as much of 40% of its advertising revenue after the pandemic shocked the U.S. economy. That follows an 80% loss from 2006 to 2018 detailed in the company’s first-day filing.
DIGITAL TRANSITION ACCELERATED UNDER FORMAN
McClatchy became less dependent on advertising during Forman’s tenure. Last year, only about 47% of revenues came from advertising, compared with 58% in 2016, according to the company’s annual reports filed with the Securities and Exchange Commission.
Forman was named CEO in 2017 after four years on the board. He brought in a new digitally focused senior leadership team, sharpened the product division’s focus on digital customers and centralized the advertising division, an initiative that had barely gotten off the ground when the pandemic hit.
He could not stop the bleeding of jobs that began more than a decade ago across the industry: McClatchy has said in regulatory filings that it cut 40% of its full-time staff from 2016 to 2019.
Yet the cuts under Forman were deeper outside the newsroom. Journalists made up a quarter of McClatchy’s employees when Forman took over; that has now grown to more than a third, the company said.
“As a former journalist, I was motivated to ensure a sustainable future for this great and essential company,” Forman, who had been a reporter at The Wall Street Journal before becoming a technology entrepreneur, said in a statement. “Now, Chatham, as new owners, will come in to build on the strong foundation this team has put in place.”
Forman said he plans to return to California’s Silicon Valley to resume his investment work in technology, media and telecom at NextNews Ventures, where he is the West Coast general partner.
Chatham is not new to media ownership. The hedge fund, which has $4.4 billion in assets, became majority owner of Canada’s largest news chain, Postmedia Network Canada Corp., in 2016. It also owns American Media Inc., publisher of the National Enquirer, although it agreed in April 2019 to sell the tabloid.
McClatchy’s path thrgh bankruptcy has been slower and costlier than it anticipated when it filed for Chapter 11 in February. The company expressed early optimism that it was close to finalizing terms and would exit within 90 days.
More than six months and millions of dollars in legal and advisory fees later, the case continues.
Even after Chatham’s bid was approved earlier this month, the deadline for filing the sale agreement was twice delayed.
As the sale plan proceeds, McClatchy is negotiating with a creditors committee representing those with less-protected claims against the company.
The committee includes the Pension Benefit Guaranty Corporation, which is being asked to take over administration of McClatchy’s pension plan. That issue was scheduled to be decided at a hearing Aug. 26. It is not expected to affect the sale.
McClatchy owns news organizations in 14 states and Washington, D.C., including the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram. Its newsrooms have won 54 Pulitzer Prizes.
The agreement filed Friday does not say whether the company will retain the family name, which has been part of California from the earliest days of statehood.
“For over a century and a half, our family has owned and operated our local news brands — these important civic institutions — to ensure thriving independent local journalism in the public interest,” Kevin McClatchy said. “The McClatchy family’s time as proprietors spans this nation’s history from the Gold Rush and the Pony Express to the moon landings to the modern mobile internet.”