Last Deadline for Daily News? : Bankruptcy Filing Is Risky Strategy for a Major Newspaper
The New York Daily News ventured into uncharted territory Thursday when it became the first major newspaper to seek refuge under Chapter 11 of the federal bankruptcy code.
On one hand, analysts and bankruptcy specialists said, the risky strategy of last resort could shield the News from the crumbling Maxwell publishing empire’s overseas woes and give the paper breathing room to recover or seek a buyer.
On the other, the bankruptcy filing could sink the troubled tabloid by scaring away advertisers and newsprint suppliers.
The Chapter 11 filing “is new ground for a high-profile, major newspaper property,” said John S. Reidy, media analyst for Smith Barney, Harris Upham & Co. in New York. “This will not help them with advertisers.”
The paper’s liabilities of $53.3 million far outstrip its assets of $37.4 million, according to the bankruptcy court filing.
Newsprint suppliers were by far the largest creditors, with Donahue Paper Co. owed $7.1 million, Quebec & Ontario Paper owed $5.5 million and Kruger Paper Co. due $3.2 million. None of those firms could be reached for comment.
The listing of liabilities did not include the estimated $35 million to $40 million in severance payments and closing costs for which the late Robert Maxwell assumed responsibility when he took control of the paper in March after a bitter, five-month strike.
“The News is going to have to convince its advertisers that it’s going to be there for the long haul, or it’s going to have to find a buyer fast, before the value of the franchise deteriorates,” said New York bankruptcy lawyer Alan Miller, a partner with Weil, Gotshal & Manges, who isn’t involved in the News’ action.
But John Campi, vice president for promotion of the News, insisted that Maxwell’s heirs have no intention of selling the newspaper. “Our projections show we’ll be profitable next year,” he said. “If the economy were somewhat decent, we’d be flying.”
The Maxwell empire’s other major U.S. holding, Macmillan Publishing Co., was not affected by the Daily News filing. However, amid allegations of financial wrongdoing by the late publisher, Macmillan’s publicly traded British parent company, Maxwell Communications Corp., said the MCC board was trying to recover missing shares in Berlitz Inc., the language-instruction firm that Macmillan has been trying to sell.
With the Maxwell empire unraveling and bankruptcy proceedings under way on two continents, any decision on whether to try to sell the News or Macmillan will likely be made by creditors rather than the Maxwells.
Though the News has greatly reduced its staff during the past year to 1,900 from 2,700 and regained about half the circulation it lost during the strike, there is no guarantee a buyer could be found. Observers noted that Tribune Co. had to pay Maxwell $60 million to take the paper off its hands. Moreover, while the paper may be making a small profit in the weeks before Christmas, New York’s economy remains extremely depressed, and the News is expected to plunge back into the red in January.
“In this environment, nobody wants to buy a trophy,” said Tom Given, a partner with the bankruptcy law firm Murphy, Weir & Butler. “People are interested in cash flow.”
The News also needs to build a new plant with color presses. “Whoever buys it would be staring a half-billion-dollar investment in the face,” said Robert M. Johnson, publisher of rival New York Newsday, which is owned by Times Mirror Co., publisher of The Times. “That’s the reason the last time around no serious investor would come in.”
Still, Barry Lipton, New York head of the Newspaper Guild, said he believed that a buyer could be found for the News. “It’s in much better shape than it was six months ago,” he said, not ruling out the possibility of an employee-led buyout.
Indeed, reporters and editors at the paper expressed relief over the Chapter 11 filing, on the expectation that it would buy time for the storied tabloid that has been struggling for a decade to survive.
Troubled newspapers don’t typically seek Chapter 11 protection for a number of reasons, according to bankruptcy experts. “Bankruptcy does not solve fundamental operating problems, and most troubled newspapers have fundamental problems,” said Barry J. Dichter, a partner with Cadwalader, Wickersham & Taft.
In addition, money-losing newspapers have historically restructured themselves without recourse to bankruptcy by shedding employees and cutting expenses--steps that the News already has taken. And unlike, for example, a retailer that goes into bankruptcy, a newspaper lacks inventory or real estate that it can sell to raise cash or restructure.
For the six months ended Sept. 30, the News had daily circulation of 762,000 and Sunday circulation of 912,000, versus prestrike circulation of 1,095,000 daily and 1,225,000 Sundays, according to the Audit Bureau of Circulation.
For the same period, the average circulation of a rival tabloid, the New York Post, was 552,000, up 42,000 from a year earlier but down from the 645,000 it averaged during the strike. The Post doesn’t have a Sunday edition.
And New York Newsday had daily circulation of 269,000 during the period, up 47,000 from the year earlier period but down from the 312,000 it averaged during the strike.
New York Newsday’s advertising-heavy Sunday edition posted bigger gains, with average circulation of 297,000 during the period, up 147,000 from before the strike.
* MAIN STORY: A1
Crumbling Empire MAXWELL FAMILY COMPANIES
* Robert Maxwell Group Ltd.
* Headington Investments Ltd.
Status: Filed in Britain for protection from creditors
(own 51% stake in Mirror Group of Newspapers PLC and own 68% stake in Maxwell Communication Corp. PLC, also own New York Daily News)
MIRROR GROUP OF NEWSPAPERS PLC
* Daily Mirror
* Sunday Mirror
* Other papers in Britain and Scotland
Status: Assets may be sold to cover Maxwell family debts
MAXWELL COMMUNICATION CORP. PLC
* Macmillan Publishing Co
* Official Airline Guide
* Berlitz International
and other publishing, printing and information services companies, mainly in the United States
Status: Assets may be sold to cover Maxwell family debts
NEW YORK DAILY NEWS
Status: Filed in New York for Chapter 11 bankruptcy court protection
Other newspapers in Europe, the United States and Israel