Hedge fund Chatham completes purchase of McClatchy, names two independent board members
New Jersey hedge fund Chatham Asset Management completed its $312 million purchase of the McClatchy Co. on Friday, opening a new era for a local news chain founded in the days of the California Gold Rush.
Chatham and Sacramento-based McClatchy officially closed the sale Friday afternoon, putting a bookend on an often-contentious bankruptcy process that was expected to take 90 days or less but that lasted far longer and proved more costly than anyone imagined.
The hedge fund will keep the McClatchy name, which has been associated with the family-controlled company for 163 years. All employees have been transferred to the new company, which will be privately owned and overseen by a five-member board.
McClatchy operates local news organizations in 30 communities across 14 states and Washington, D.C., including The Miami Herald, the Sacramento Bee, the Kansas City Star, the Fort Worth Star-Telegram, the Charlotte Observer and the (Raleigh) News & Observer.
“McClatchy is a storied franchise with a rich tradition of serving the interests of local communities across the country. Now, more than ever, investing in independent journalism is imperative to ensuring the public is informed about critical issues impacting regions nationwide,” Chatham said in a statement. “We are proud to serve as stewards of the business as it continues to provide consumers with important news and information from a newfound position of strength.”
Tony Hunter, the former Tribune executive who was named McClatchy’s new CEO last month, will serve as board chairman, the company said.
“I come to the job battle-tested and ready to work with employees at McClatchy in finding solutions to the challenges we face, and to move with more urgency,” Hunter said in an interview.
Hunter, who was CEO of Tribune Publishing when it emerged from bankruptcy in 2012, said he is “clear-eyed” about the challenges facing McClatchy and the local news industry.
“I have operated through disruption my entire career,” he said. “I’ve been a change agent, and I’ve learned a lot about how to go through these transformations.”
The new CEO’s influence is obvious on the new board. Both independent directors, selected jointly with lender Brigade Capital Management, were associated with Hunter.
One is former basketball star Jamal Mashburn, who served with Hunter on the board of a cannabis company, Revolution Enterprises. After ending his 12-year NBA career in 2006, Mashburn opened more than 150 businesses, including Papa John’s Pizza franchises and car dealerships in multiple states.
The other independent director is John Bode, a former chief financial officer for Tribune Publishing. He is currently chief operating officer of the book distribution company ReaderlinkDistribution Services.
Bode has ties to Chatham as well. Since October 2018, he has served on the board for PostMedia, a Canadian news chain that is majority-owned by Chatham.
The company did not immediately identify the remaining board members.
Shedding legacy of Knight Ridder deal
The seeds for Friday’s sale were likely planted 14 years ago, when McClatchy purchased the rival Knight Ridder chain. McClatchy paid $4.5 billion in cash and stock and assumed $2 billion of the much larger company’s debt.
McClatchy still held more than $703 million in debt when it filed bankruptcy, and its unfunded pension obligations were estimated to be valued above $805 million last July.
Since 2011, the company had made more than $275 million in pension payments in excess of what was required. It used the sale of its buildings and other assets to pay creditors and pension obligations.
The new McClatchy shed much of the remaining debt and the pension obligation in bankruptcy.
The Pension Benefit Guaranty Corporation, the federal agency that takes over qualified pension programs from distressed companies, has agreed to assume McClatchy’s plan, which covers roughly 24,500 current and former employees.
Shedding those twin burdens is key, as the new McClatchy is born into an uncertain economy, one in which the coronavirus pandemic has ravaged advertising.
McClatchy’s advertising revenue, as a share of all revenue, fell 35 percent from April 1 to June 30 as Covid-19 spread across the nation, the company said in an Aug. 17 regulatory filing.
And the bankruptcy case had already cost McClatchy nearly $21 million in legal and advisory fees through the end of June.
Still, Hunter, the new CEO, said McClatchy’s finances are in better shape as it exits as a new company focused on accelerating its digital transformation.
Hunter served as chairman of an effort by four major news chains -- Hearst, Tribune Publishing, Gannett and McClatchy -- called Nucleus Marketing Solutions. Begun in April 2016, the joint effort sought to connect national advertisers with local news audiences.
“I went to school for three years, learning what clients are looking for in digital advertising,” he said. “I have been knee deep in the digital environment since I left Tribune.”
As Hunter officially assumes leadership of the new company, a federal bankruptcy judge is scheduled to officially extinguish the old one at a Sept. 23 hearing.
Battling to avoid bankruptcy
McClatchy, led by CEO Craig Forman and board chairman Kevin McClatchy, a descendent of the founder, fought desperately to avoid bankruptcy, including restructuring its long-term debt in 2018 in a bid to buy time while it sought merger partners.
Unable to make the merger financing work, McClatchy next sought relief from Congress to postpone a pension payment of more than $120 million due in 2020.
Months of closed-door lobbying ended last December when McClatchy was excluded, at the last minute, from legislation that provided pension relief to other newspaper owners.
Weeks later, McClatchy and its creditors fell short of a fully prearranged bankruptcy, but hopes were high that the company would make a quick exit with Chatham emerging as the new owner.
Those initial plans called for wiping out 55 percent of the company’s debt.
But the timeline proved to be optimistic.
By April, with the pandemic raging and negotiations moving slowly, McClatchy told the court it would sell the company at auction. The final bidding came down to Chatham and Alden Global Capital, owner of MediaNews Group.
In another twist, Alden sought to disqualify part of Chatham’s bid before the auction began. Judge Michael E. Wiles allowed the auction to proceed, and McClatchy declared Chatham the winner on July 12.
Chatham converted $263 million of debt into an ownership stake and added $49 million in cash, most of which will go into a trust to settle creditors’ claims.
In the end, the terms of the sale were almost identical to what had been envisioned in February.
This story was originally published September 4, 2020 at 4:02 PM.
