Last week, an investor group called 2100 Trust LLC announced that it was acquiring the remaining assets of Freedom Communications, consisting of the Orange Country Register and six other papers, the largest of which is the Colorado Springs Gazette. The terms of the deal haven't been disclosed, but I took a stab at figuring out how much greeting-card mogul Aaron Kushner and his team of investors at 2100 Trust are bringing to the transaction.
My number is $156 million.
I also broke down the financing, which on its face doesn't look all that risky.
But there are some wrinkles to this deal.
First, the LA Times reported, based on unnamed sources at the O.C. Register, that Kushner and his investors plan to "spin off" the six smaller papers. They intend to use the proceeds from these sales to finance the OCR purchase. By my math, assuming no premiums — extra cash — added to the deals, 2100 Trust could garner $44.5 million from these sales. That would get them more than halfway to buying the OCR, which I have priced at about $111 million, including a $40-million premium — a "Manchester premium," given that Doug Manchester probably overpaid by at least that much to buy the San Diego U-T.
But Kushner still has to sell these papers — which he hasn't officially bought yet.
In other words, the "financing" on the OCR purchase is slated to come from future deals. It's possible that Kushner is brokering these deals right now, even as he's buying the papers he plans to sell. The Freedom acquisition won't close for several weeks, so it's very difficult to figure out what's going on right now. No one is talking. Numerous calls to Dirks, Van Essen & Murray, the New Mexico newspaper broker that sources with knowledge of the Freedom deal said had arranged the sale to 2100 Trust, were not returned.
Second, there's the matter of a possible $100-million unfunded retirement liability that Kushner may have inherited from Freedom. This was evidently a dealbreaker for Manchester's effort to buy the OCR, as the U-T reported earlier this month:
U-T San Diego had been interested in acquiring the Register, but last week CEO John T. Lynch sent a memo to U-T managers saying that after nearly six months of negotiations, talks had been terminated.
“While there is a great fit and the consolidation benefits are obvious, there are complex issues related to the enormous, unfunded Freedom pension liability that simply could not be overcome,” Lynch said Monday.
I got the $100-million figure from one of my Twitter correspondents, @Scott2Fischer, whom I have reason to think may be Scott Fischer, the former publisher of the Gazette. In two tweets last week after I published my post about the Freedom deal size, this individual wrote:
Freedom has a retirement plan, that is 60% underfunded Close to $100m. The buyer is assuming the full retirement
And, when I asked for some clarification in a tweet reply of my own:
[R]etirement is past liability it has been discontinued, still owed to employees. Must bring current or pay high fee to continue.
I tried to track down @Scott2Fischer to determine if the owner of the Twitter account is in fact the former Gazette publisher, but my efforts to do this on Twitter were unsuccessful. An email to the current publisher of the Gazette met with no response, and an inquiry to GLG Research — where a Scott Fischer who used to be the Colorado Springs Gazette's publisher is listed as a freelance consultant — led to no confirmation.
(An account of Fischer's 15-month tenure as publisher of the Gazette, which ended in 2000 with a "difference in management philosophy with the newspaper's parent company," according to the Gazette itself, differs from Fischer's GLG bio, which lists him as a Freedom executive until 2002.)
Several calls to the U-T's John Lynch, in an effort to get some clarity on @Scott2Fischer's numbers, were also unreturned.
So let's take @Scott2Fischer at his word. Freedom owes its retirees $100 million. Apparently, 2100 Trust needs to take care of this or pay a "high fee," presumably to push satisfying the liability down the road. If it does exist — and John Lynch's comments confirm that it probably does — then it was Freedom debt that wasn't discharged during its bankruptcy in 2009-2010. Freedom emerged from Chapter 11 with its debt reduced to $325 million from $775 million, a 58 percent haircut.
That $100 million takes the deal — again, by my rough math — to $256 million. That means that if Kushner is bringing 30 percent investor equity to the deal and financing the rest, his borrowing will go to $180 million from $109 million, a decent jump. However, if he sells the smaller papers, he can certainly use the money to cover at least some of the retirement-fund liability.
The underfunded Freedom retirement plan scared off Manchester, but it doesn't seem to have frightened Kushner. But then again, Kushner seems to be financing this whole deal very much on the fly.
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