A plan by Freedom Communications insiders to buy the assets of the bankrupt newspaper company is in danger of losing a key backer, jeopardizing their effort to retain control of the Orange County Register.
Santa Ana real estate developer Mike Harrah said his hesitation had already prevented the group from submitting a planned early bid for the company. On Friday, he told the Los Angeles Times that he may back out entirely.
“I thought the paper was making a lot more money than it was,” Harrah said. “To this day I don't know what the paper is worth.... Maybe, just maybe, it's better off that we don't buy it.”
Without Harrah's money, it is unclear whether the investor group — which includes Freedom Chief Executive and Register Publisher Rich Mirman and Freedom Chairman Eric Spitz — could proceed on its own.
“If Harrah is out of the bid, it could be that the ownership group basically folds,” media industry analyst Ken Doctor said. He noted, though, that Spitz and Mirman could seek other backers and that there are other investors interested in Freedom's land.
If the insiders can't put together a bid by March 11, that would leave Los Angeles Times parent Tribune Publishing and Los Angeles Daily News owner Digital First Media as the only two companies that have confirmed interest in acquiring Freedom's assets, which include the Register and the Riverside Press-Enterprise.
In a statement Friday, Freedom spokesman Eric Morgan did not address Harrah's concerns but said the developer is still part of the investor group.
“We are honored to be working with Mike Harrah in preparation for our bid for Freedom Communications. Mike has a long history of success in the growth and revitalization of local businesses, and is enthusiastic about preserving local ownership of the Orange County Register and the Press-Enterprise,” Morgan said.
But with the bid deadline approaching, Harrah said he still didn't have all the information he needed.
He's concerned about possible environmental contamination at the Register's printing plant site in Santa Ana, about the value of assets held by Freedom's pension plan and about the profitability of Freedom's newspapers.
“I've got to tell you, it's just getting too close to the end for me to make a decision,” he said. “What are you buying? I keep saying that to Eric and Rich. What's it worth?”
Harrah said Mirman and Spitz brought him in to help bankroll a bid for Freedom's assets and presented him with “a proposal and plan that looked really good on paper.”
But that plan looked less attractive as Harrah and his attorney investigated the company's holdings.
He said he was still trying to understand the value of the papers and Freedom's real estate holdings. Between Nov. 1 and Jan. 31, Freedom reported a net loss of $2.9 million.
Harrah is also concerned that land underneath the Register's plant could be contaminated by decades' worth of spilled newspaper ink. If tests show there is contamination, he estimated it could cost millions to clean up before new development would be allowed.
Harrah, who purchased the Register headquarters in 2014, wants to build a mix of condos, apartments, retail shops and a hotel on the surrounding 14 acres, though he would still need city approvals.
Then there's Freedom's pension plan. A federal pension insurer has said it would need $155 million to take over the plan, indicating that it is dramatically underfunded. And an attorney for Tribune Publishing said at a court hearing early this month that the pension owns “unusual” and “complicated” assets.
Attorneys and Freedom executives have declined to comment on what those assets are — and Harrah said that even he isn't sure, despite conversations with Spitz, who oversees the plan.
“I'm asking my attorney to find out. I don't have enough information from Eric to make a decision,” he said.
If he does proceed with Mirman and Spitz, Harrah said the offer is “not going to be a very high offer.”
He said he and his firm, Caribou Industries, “may not show up at all,” adding that his primary interest is in developing the real estate. “We'll let someone else go in and buy it and we'll talk to them after the show.”
He said Jack Griffin, the recently ousted chief executive of Tribune Publishing, met with him a few weeks ago to gauge Harrah's interest in buying the land from Tribune if it wins the auction.
An attorney for Tribune Publishing confirmed the meeting, but said the discussion was focused on whether Harrah, who owns the building, would lease office space and the printing press to Tribune.
“I am a developer,” Harrah said, noting that he has never invested in a media company. “My total media experience is delivering the newspaper when I was 10 years old.”