The bankruptcy sale of Freedom Communications Inc. to Digital First Media indicates The Orange County Register will be overseen by executives in Los Angeles with responsibility for a regional publishing operation with 11 daily newspapers stretching from the San Fernando Valley to the Inland Empire.
Freedom’s flagship newspaper and the Press-Enterprise in Riverside are part of the newly named Southern California News Group headed by Publisher and President Ron Hasse.
Digital First’s organizational structure for its nine other newspapers in Southern California—Los Angeles Daily News, the Daily Breeze in Torrance, Long Beach Press-Telegram, Pasadena Star-News, San Gabriel Valley Tribune, Whittier Daily News, Inland Valley Daily Bulletin, The Sun in San Bernardino, and Redlands Facts—also suggests a centralized approach.
Hasse appears set to remain based at the group’s headquarters in the Woodland Hills district of the San Fernando Valley, part of the city of Los Angeles and longtime home turf of the Daily News.
It’s the first time in the Register’s 111-year history that it won’t have a publisher based within its circulation.
Current practices also imply that the rest of Digital First’s executive leadership listed on other newspapers’ mastheads—Chief Revenue Officer Tom Kelly, who also serves as senior vice president of advertising; Chief Financial Officer Dan Scofield; Executive Editor Frank Pine; and Vice President of Interactive Kyla Rodriguez—are likely to take on responsibility for the Register and Press-Enterprise from group headquarters in Los Angeles.
It remains unclear how much of a local leadership team Digital First will install at the Register.
Freedom Chairman Eric Spitz said he and Chief Executive Rich Mirman will be out of their jobs soon.
“The deal closes on the 31st, and I don’t expect they are going to hire us,” Spitz said.
Mirman, who couldn’t be reached for comment, declined to speculate what the future might hold but hinted at his own departure in a recent email to staffers shortly after a bankruptcy court approved the sale to Digital First.
“We are still awaiting the details of the transaction and therefore unable to comment on any next steps in the transition process,” he said. “Freedom Communications and its media brands have a proud history of delivering quality local journalism and service to the community … I wish DFM all the best in their ongoing management and operations of such a tremendous institution.”
Payout
The $52.3 million in cash Digital First agreed to pay for Register parent Freedom will cover three secured creditors—$20 million will go to Silver Point Finance LLC in Greenwich, Conn.; $3.5 million will be divided between Freedom’s former chief executive, Mitchell Stern, and Mark McEachen, a former chief financial officer; and $16.2 million will go to Pension Benefit Guaranty Corp. for missed payments.
Freedom’s “real estate will be now unencumbered,” said Freedom’s attorney, Alan Friedman of Lobel Weiland Golden Friedman LLP in Costa Mesa. Any liens against the assets, including those by Angelo Gordon & Co. and OC Media Tower LP, “are going away,” Friedman said.
About $1.5 million was “set aside for litigation expense to produce more money for unsecured creditors,” said Robert Feinstein of Pachulski Stang Ziehl & Jones LLP in Los Angeles, which works for the committee representing Freedom’s creditors.
Friedman said the committee will likely “go after anybody for having put the debtor in this precarious position,” an apparent allusion to laws that can place retroactive restrictions on transfers of assets and payments made within 90 days of a bankruptcy filing.
Also paid will be some $6.2 million in administrative expenses of the bankruptcy, including more than $1 million in attorney fees. Priority claims totaling $3.3 million include about $1 million in retention payouts to seven “key executives”—excluding Mirman—who will remain on the job up until the close of the sale. Any laid-off employees will get two weeks of severance pay under the terms of the deal.
Pensions
Digital First gets the Register without the albatross of pension obligations. The U.S Pension Benefit Guaranty Corp. will take over The Retirement Plan of Freedom Communications Inc. as the trustee and use its own funds and $274.1 million in assets currently in the plan to pay for pension benefits of present and future retirees, up to about $60,000 per year each starting at age 65. That should wholly cover the vast majority of beneficiaries—the plan had about 5,214 participants in July 2015, according to the federal agency—except for a handful of former executives who are usually entitled to larger annual payout.
Mirman’s group, which included Spitz and real estate developer Mike Harrah as the principal investor, initially planned to take on the pension obligations along with its $37.5 million bid, but did not “provide enough information to allow PBGC to get comfortable that they would be able to perform the obligations of the plan going forward,” Freedom attorney Friedman said. “At the end of the day, the group, in order to be successful, had to assume the pension plan. And because the PBGC said, ‘Hey, we need more,’ and more wasn’t there, they couldn’t do it.”
Harrah’s Play
Harrah, meanwhile, said the insider group was planning at last week’s sale hearing to “put in one more bid … equal or better than the purchase price” to “try to save the paper and keep it in OC.” But with Chicago-based Tribune Publishing Co. conceding and withdrawing its motion to deny stalking bid protection to Digital First just hours before the hearing, it was “game over,” Friedman said.
The game isn’t entirely over for Harrah just yet—he owns the building that houses Freedom’s headquarters and the Register’s operations, and said he’s negotiating with Digital First to buy an adjacent parcel of real estate.
“They called me already and said that they want to work out something with the land,” Harrah said.
Tribune Publishing, the owner of the Los Angeles Times and San Diego Union-Tribune that initially won the auction with a $56 million bid, also had a potential buyer for the real estate in the wings, according to sources.
The U.S. Department of Justice gained a temporary restraining order holding up the sale to Tribune Publishing, though, claiming it would “monopolize the market and control the only two local daily newspapers with meaningful circulation in Orange County.”
OC Data
The bankruptcy process unearthed various data on the parties involved.
Freedom in its latest statement of operations said the Press-Enterprise closed February with $3.38 million in revenue and $272,000 in net income, while the Register posted $10.3 million in revenue and a loss of $1.9 million for the month.
Tribune Publishing, in an attempt to make its case in court, revealed data about its OC operations here.
“The Times has a circulation of 66,000 daily and 110,000 Sunday and the Register has a circulation of 122,000 and 234,000 Sunday in that area,” wrote William Hall, principal at Washington, D.C.-based Economists Incorporated, a firm Tribune Publishing hired to “analyze the competitive effects” of adding Freedom to its fold. “[Los Angeles Times’] advertising revenues of $435 million in 2010 fell to $249 million in 2015 and are expected to fall another 10% in 2016.” That adds up to about $222 million, which is down about 75% from its peak.
“The Sunday Orange County local section has revenues of only about $625,000 per year, and the Saturday section has even fewer ads that may generate revenues of about $2,000 per week.”
It also said that the combination of the Times and the Register “will result in substantial synergies for the Tribune, especially for a deal of this size. Tribune Publishing has estimated synergies of $24 million per year across all aspects of the operation, including Production & Operations, Editorial, Advertising, Circulation and Marketing, and General and Administrative and Corporate. [Guggenheim Securities] has estimated that an alternative bidder, Digital First Media, could realize $15.5 million per year in synergies.”
