New Jersey-based hedge fund Chatham Capital Management submitted the winning bid for the McClatchy Co., five months after the publisher of the Miami Herald, Kansas City Star and more than two dozen other newspapers filed for bankruptcy.
The announcement, which signals an end to 163 years of family ownership, underlines the growing influence of the finance industry on U.S. newspapers. And it means that a news company known for winning top journalism prizes is likely to become the property of a firm that owns The National Enquirer and other supermarket tabloids.
The companies did not put a price on the deal announced Sunday, which comes after a judge rejected a last-minute challenge by another hedge fund. But in an earlier filling, Chatham offered roughly $300 million in a combination of restructured debt and at least $30 million in cash.
The plan is subject to bankruptcy court approval; a hearing is set for July 24.
McClatchy, hobbled by debt and pension obligations, filed for Chapter 11 protection in February in U.S. Bankruptcy Court in the Southern District of New York.
Chatham, which manages about $4 billion in assets on behalf of its clients, is expected to become the majority owner in the third quarter of the year, McClatchy said, and the publicly traded newspaper will go private. It will not be split up, McClatchy said, its 30 news outlets remaining intact.
The publisher has said it received interest from more than 20 companies, but could provide no details about any of the bids after Judge Michael E. Wiles ordered them sealed.
Competing hedge fund Alden Global Capital filed an emergency motion to delay the bankruptcy auction, but the bid was denied. Its media business, run under the name Digital First Media, owns 98 newspapers, including the Denver Post, Orange County Register, San Jose Mercury News and St. Paul Pioneer Press.
But even before the coronavirus recession took hold, local publishers had long struggled with online business models and dozens of papers were snapped up by private equity firms -- including Alden and GateHouse Media, which now owns Gannet -- that pursued profitability through steep retrenchments.
Chatham in a statement said it was "pleased with the outcome of the auction" and that it was "committed to preserving newsroom jobs and independent journalism that serve and inform local communities during this important time."
"From the outset of this voluntary Chapter 11 filing, our aim was to permanently address both the company's legacy debt and pension obligations and strengthen our balance sheet in order to provide greater certainty and stability to the wider group of our colleagues and stakeholders who benefit from a restructured McClatchy," McClatchy President and Chief Executive Craig Forman said in a statement. "We're pleased that Chatham and the supportive secured first-lien creditors believe in our business and our mission and are helping to achieve these goals. Local journalism has never been more vital and we remain steadfast in our commitment to delivering on our mission and continuing to serve our communities."
Hedge funds and private equity firms have had a growing presence in the news industry, to the chagrin of press advocates who argue that financial firms do not make civic-minded stewards of a business built largely on holding the powerful to account.
McClatchy has attributed much of its financial problems to its 2004 acquisition of Knight Ridder for $4.5 billion. McClatchy had historically focused on local news coverage and Knight Ridder had a much larger national footprint, plus better digital infrastructure.
But the deal came as readers were accelerating their migration to online news outlets, then dovetailed with the recession in 2008. McClatchy again doubled down on local news coverage instead of national and international stories, the strategies that have led the New York Times and Washington Post to better financial outcomes.
Earlier this year, McClatchy suspended some pension payments and announced it had hired a bankruptcy administrator to help it secure a government takeover of its retirement plan. In November, the publisher said it would not be able to make a required $124 million payment to the fund, which, as of March 2019, was underfunded by $535 million.
McClatchy's auction was closely followed by journalism community leaders and civic officials, alike. The mayors of Miami Dade County, Fla.; Kansas City, Mo.; Raleigh, N.C.; and Lexington, Ky. all wrote to the court asking that Wiles approve a sale to a responsible steward of journalism.
"Our community needs a strong daily paper that is locally rooted and locally invested in our community, motivated by the desire to serve the broader public interest and not the narrow bottom line," Raleigh Mayor Mary-Ann Baldwin wrote. "Please consider paths for each of the local McClatchy papers that will help sustain and support strong, independent journalism."
Information for this article was contributed by Jacob Bogage of The Washington Post and by Marc Tracy of The New York Times