June 1, 2004

'Chicago group' to
remain with Hollinger

By Michael Ulreich
President, Chicago Newspaper Guild

 For now at least operations at the Chicago Sun-Times, Pioneer Press and daily newspapers in Waukegan and Joliet will remain in the hands of Hollinger International.

With lawsuits flying and the board of directors of Hollinger still evaluating bids for the rest of their newspaper empire, the Sun-Times, in an article May 28 by Guild member Eric Herman, announced that it would not sell the newspapers in its so-called Chicago group.

However Herman quoted “sources close to the process who cautioned that no decision was final and the company could still shift course."

“The corporate review committee has decided that, at this point in time, the focus of the strategic process should be the potential sale of the U.K. assets,’’ said Hollinger International Chairman and Chief Executive Gordon Paris, who took over the reins of the corporation from Conrad Black, the former board chairman and CEO who was removed amidst allegations of financial improprieties.

“As far as I’m concerned I’m not altogether sure it’s a bad thing, it’s probably a good thing,’’ said Gerry Minkkinen, executive director of the Chicago Newspaper Guild, during a break in negotiations for a new contract for Sun-Times editorial employees. “The problems we had were with the old management not the current management, who seem to be interested in running competitive newspapers, which is a very positive development for us.’’

Lynne Stiefel, chairman of the Pioneer Press unit of the Newspaper Guild, has just finished negotiations on a new contract with Hollinger management team. An impasse in negotiation was only broken when Black was out and a new management attitude took over. Pioneer has since hired new reporters and photographers to fill vacancies created during the cost-slashing tactics of Hollinger's old guard.

 “The last few months have been better than it was under Conrad Black and if Hollinger continues to operate in this spirit I hope we can continue to have a profitable relationship,’’ Stiefel said.

Earlier this year an alleged source close the Hollinger sale negotiations said that the “For Sale’’ sign had come down from outside the Sun-Times and indicated that the company’s Chicago group hasn’t drawn much interest.

Instead bidders were interested in purchasing Hollinger’s London Daily Telegraph and to a lesser extent the Jerusalem Post and the Chicago group which includes Pioneer Press, the Chicago Sun-Times, the Waukegan News Sun and the Joliet News Herald, all represented by the Newspaper Guild.

There is a lack of interest in the Chicago group, the report said, because of the tax liability of the Chicago group if sold off separately. Also the sale of the Daily Telegraph would not require the approval of the majority of company shareholders, i.e. Conrad Black, the majority shareholder and former CEO. There is also a fear, the Sun-Times account said, of shareholder suits, a $250 million tax liability from the sale of the firm’s newspapers in Canada and the on-going legal battle between Black and the corporation.

    A report earlier this year in the Chicago Sun-Times said Hollinger received a dozen bids for its newspapers, which include the Sun-Times and Pioneer Press, but the process of awarding a bid to a potential suitor was expected to take months.

  The Sun-Times May 28 said in the final round the Daily Telegraph drew five bids and the Chicago group two---one from Yusef Jackson, the son of Jesse Jackson, and Ron Burckle, a former owner of Dominick’s Finer Foods and the other from a joint venture of a subsidiary of Citicorp and the Ontario Teacher’s Pension Plan.

But the newspaper said Friday that the bids did not approach the $1 billion asking price for the Chicago group. In fact, it said, the bids fell about $270 million short. The Sun-Times has a daily circulation of  486,936 and the Chicago group has a total daily circulation of 780,000.

The Chicago group also includes the Waukegan News Sun, Joliet News Herald, the Daily Southtown, the Star newspapers, the Naperville Sun, dailies in Aurora and Elgin and Sun Publications.

    Hollinger was expected to seek one bid for its entire newspaper operation and the Sun-Times reported last month that at least two bidders backed off when the company said it preferred one bid for the whole operation.

However former Illinois Governor James Thompson, a member of the board of directors committee considering the offers, said the company would consider all options, including the piecemeal sale of the company’s newspaper operations. Hollinger, however, would have to pay a far greater tax by selling its newspapers in pieces rather than a whole, which leads most experts to believe that a bidder like the Scottish Barclay brothers would buy the whole operation, keep the Daily Telegraph and then sell off pieces like the Chicago group. The Daily Telegraph has a daily circulation of $929,000 and could be worth anywhere from $750 to $900 million by itself.

The bidders reportedly still include the Barclay brothers, the British publisher Richard Desmond, and two European private equity firms. In the United States the bidders are said to include Burkle and Jackson, Israeli billionaire Haim Saban,  as well as the Tribune Co. Both Burkle and Saban have raised funds for Democratic Party candidates.

The Gannett Newspaper Group, the owner of USA Today as well as a number of other newspapers, has also expressed an interest in Hollinger newspapers, but according to the Tribune, they are only interested in acquiring the London newspaper and have no interest, the Tribune said, in the “less desirous’’ Chicago group. Last month there was a report in the Sun-Times that Gannett had dropped out of the bidding.

    According to Tribune media and marketing reporter Jim Kirk, “The Chicago Tribune appears mainly interested in the company’s suburban papers and would be a player if a winning party wanted to split off the Sun-Times from the rest of the Chicago Group. But analysts have said that the properties are more valuable together and that such a scenario is unlikely.’’

  Kirk also reports that some Sun-Times reporters and/or columnists are apprehensive about working at a paper owned by Jackson, “whose family includes a controversial civil-rights crusader and congressman.’’

   Another bidder appears to have been Liberty Publishing of suburban Northbrook. But its $900 million bid was rejected as too low, according to reports.

   Company founder Conrad Black had a deal to sell his share of Hollinger to the Barclay brothers for $467 million but the deal was blocked in court as Black faces charges of financial impropriety. Black and former Sun-Times publisher David Radler reportedly face a federal investigation into whether they took some $32 million in unauthorized payments from the company.

A lawsuit filed by Hollinger charges that Black, his wife Barbara Amiel, Radler and two other former Hollinger officials used the newspaper operation as a “cash cow’’ and kept about 72 percent of the company’s profits, mainly through the payment to these officials of  fees for “management services.’’ Since 1997, according to the suit, Hollinger paid a company owned by Black, called Ravelston, $218 million for management services. Black, Radler and the other officials named in the suit also took $88 million for agreeing not to compete with newspapers they had sold.

The suit also said Amiel was paid $1 million from 1999 through 2003 for doing “little, if any, work,’’ as well as stock options and director’s fees.

The suit seeks $1.25 billion in damages.

Among other disputed expenses named in the lawsuit were $90,000 Black charged the company to refurbish his 1958 Silver Wraith Rolls Royce and a tip Amiel gave a doorman at the Bergdorf-Goodman store and between $4.6 and $6.5 million Black, Amiel and Radler charged the company for corporate jet travel to commute to their homes.

   A final disposition of the company’s newspaper properties still faces litigation as Black continues in his attempts to control the company through his shares.

    The company’s newspapers are said to be worth more than $1.7 billion.

(It’s interesting to note that last year, when the Chicago Guild was considering starting a Hollinger Stock club for Guild members, Hollinger stock was trading at about $11.25 a share. It’s now up over $19.)