Potential S-BCecil Heftel, the former U.S. congressman who is interested in buying the Honolulu Star-Bulletin, predicts that the newspaper will find no takers unless a federal judge steps in to improve the terms of the sale.
buyers seek more
time for bids
The broker handling the
deal indicates that the
owners are willing to
work with interested parties
By Peter Wagner
"It's got to be in the hands of the court or the Star-Bulletin will be closed," Heftel said yesterday.
The former broadcast executive and other interested parties have expressed concern that the Aug. 14 bid deadline does not allow potential buyers enough time, given the trouble they have had getting information about the Star-Bulletin's operations.
But Phil Murray, the broker in charge of selling the newspapers, indicated that the sellers were willing to work with potential buyers on the timing.
"Nobody has communicated to me that they are worried about timing," Murray said. "If they are, they should express those concerns to us and we'll see what we can do about buying them some extra time."
Heftel leads one of several interested groups that complained last month about a tightly controlled "data room" where potential buyers can view but not copy business records of the Star-Bulletin. Last week, some long-requested information on the paper's operations was released, but potential bidders say time is running short and critical questions remain.
"We do not have all of what we need," said Heftel. "We're still trying to figure out much of what we have in terms of how to interpret it. But, more important, we will most certainly need time."
Under current terms, the data room will close on Saturday with final bids due Aug. 14.
The deadlines are far too tight, said Heftel and other potential buyers, to come up with investors, a bid, and a business plan to keep the Star-Bulletin afloat during its difficult first years of new ownership.
The data room was set up in a downtown law office by newspaper broker Dirks Van Essen & Murray, representing Star-Bulletin owner Liberty Newspapers L.P., a Florida-based company, and Gannett Pacific Corp., owner of the Honolulu Advertiser. Gannett also has controlling interest in a joint operating agreement that maintains the business operations of the two newspapers, which maintain separate newsrooms.
The Star-Bulletin has been up for sale since April 24, a three-month interlude in an antitrust lawsuit brought by the state Attorney General late last year alleging Liberty and Gannett conspired to create a monopoly for the Advertiser.
Among the data room concerns were the absence of some records, denial of others, and a policy against photocopying available material.
Federal Magistrate Barry Kurren, overseeing the court-supervised sale, on July 19 ordered that information withheld by the seller could be sought directly from the court. While a large volume of information became available within days of Kurren's ruling, Heftel and others said it was too little and too late.
"We're trying to figure out how to deal with these time constraints," Heftel said. "And we're going to have to hope the court evaluates the obligations Gannett has under its original purchase of the Advertiser."
Gannett in 1993 sold the Star-Bulletin to Liberty under terms including a 20-year joint operating agreement. Executives of both companies last September announced that Gannett would pay $26.5 million to Liberty in return for ending the JOA and closing the Star-Bulletin.
Heftel hinted he may seek a subsidy or some "transition" from Gannett similar to the sale of the San Francisco Examiner to publisher Ted Fang. Hearst Corp., which sold the afternoon Examiner and bought the competing San Francisco Chronicle, agreed to pay a $66 million subsidy to tide the new Examiner owner over for three years.
"We don't know how to make an offer that doesn't include something like that unless we're foolhardy and want to run the risk of disappointing those who invested money," Heftel said.
Mark Eissman, a Chicago attorney and member of another investment group headed by Windward auto dealer Mike McKenna, received some long-sought records from the broker late last week.
"It's tough, let's face it," Eissman said. "This leaves a very short time for review and financial modelings. And there's very little time left to find additional money if it's needed."
Among the information Eissman received was an inventory of Star-Bulletin assets, details of the paper's 1999 editorial budget, audited financial statements of Liberty Newspapers, and employee salaries, none made available in the data room.
"If the current deadlines are held to, the process will have been greatly crippled by the lack of information," Eissman said.
Josh Wolf-Powers, an associate at New York investment banking firm Keilin & Co. representing Star-Bulletin employees as possible buyers, said a deadline extension is critical if the newspaper is to find a buyer. "I would hope that time will not be what prevents the newspaper from being sold," he said.
Wolf-Powers, who also received requested information from the broker last week, said he still lacks sufficient details to make an informed bid. "They've provided me with much of what I've asked for but there are crucial gaps in what I've been provided."
Wolf-Powers, Eissman, McKenna and Heftel have separately complained about the sales process, saying the sellers have been stonewalling inquiries from interested parties since naming a broker on May 5.
But according to Murray, the broker in charge, not every interested party is unhappy with the process. "There are other bidders in the process who are not complaining," he said, declining to identify other interested parties.
Peter McClaran, publisher of the Kauai Business Report and part of another interested group, told the Star-Bulletin earlier last month that he was satisfied with the data room information.
Murray noted the Star-Bulletin sale is unusual in that sensitive information is being shared with a potential competitor.
"It's really to Gannett's credit that they provided all this information to potential competitors," he said.
Heftel said he has been somewhat less impressed.
"We didn't get financials that we could begin to work with until a couple of weeks before the deadline," he said.
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