Friday, August 15, 2003, 12:00 A.M. Pacific
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Firm hired by Hearst to look for P-I buyer
By Bill Richards
Special to The Seattle Times
The Hearst Corp., carrying out its threat to hang a for-sale sign on the Seattle Post-Intelligencer, hired a New York investment-banking firm yesterday to look for a buyer for the 140-year-old daily newspaper.
In a brief announcement from its New York headquarters, Hearst said it had retained Veronis Suhler Stevenson to "find a qualified buyer for the assets" of the paper.
While the ultimate fate of the P-I is to be determined, the move suggests the paper will be in different hands or shut down if Hearst doesn't prevail in its lawsuit against its joint-operating agreement (JOA) partner, The Seattle Times Co.
Hearst sued in King County Superior Court in late April to prevent The Times from using a provision in the JOA that could lead to the P-I's closure as early as October 2004. Last month, Hearst threatened to put the P-I up for sale if the pace of the legal fight didn't speed up; the judge presiding over the case refused to do so.
"Hearst is seeking a buyer who will operate the P-I as a commercially independent daily newspaper outside the joint-operating agreement," the company said in a prepared statement yesterday.
It is unclear whether Hearst can find a buyer for the P-I, a paper with news and editorial departments but no presses, delivery trucks or a circulation and advertising department of its own. Under the JOA, The Times handles those functions for both papers, which then publish independently and split their pooled revenue. The Times receives 60 percent and Hearst 40 percent after the Times is paid for handling nonnews operations.
If Hearst voluntarily closes the P-I within 18 months of when the process started to end the JOA, it would receive 32 percent of The Times' profit for the next 80 years.
It is unclear whether Hearst is using the offering as an attempt to shut the paper without raising antitrust concerns from the U.S. Justice Department, which oversees the dozen newspaper JOAs in the country.
The media giant has experience dealing with the Justice Department over JOA issues.
In 1999, Hearst hired Veronis Suhler Stevenson to find a buyer for the San Francisco Examiner, as it attempted to acquire its JOA partner, the San Francisco Chronicle, from descendants of founder M.H. deYoung. Veronis shopped the Examiner's assets, including its masthead and some publishing equipment, but not its JOA partnership. A month went by, with no buyer found.
The Justice Department then told Hearst to offer the paper as part of the JOA. Hearst did not, but reopened the offer and threw in its San Francisco printing plant as part of any deal. The second offer failed to produce bids equaling the paper's liquidation value.
Finally, to win the Justice Department's approval to buy the Chronicle, Hearst shed the Examiner, turning it over to a local publisher and giving the new owner a $66 million, three-year subsidy. The publisher eventually turned it into a giveaway paper earlier this year.
Hearst purchased the Chronicle for $660 million and operates it today.
Hearst spokesman Paul Luthringer declined to say how long the company would search for a buyer for the P-I, or what assets were being put up for sale. The P-I currently employs 155 news and editorial staffers.
Luthringer also declined to say what Hearst was asking for the paper.
Newspaper industry experts said there is little likelihood of Hearst finding a buyer for the P-I. "It's a mandatory step," said Owen van Essen, a newspaper broker based in Santa Fe, N.M.
But other JOA papers have been sold without support facilities. Liberty Newspapers, a Hawaii-based partnership, sold the Honolulu Star-Bulletin in 1999 to Victoria, B.C.-based publisher David Black.
Black paid $10,000 for the paper, then bought a weekly with printing and distribution facilities and used it to publish the daily Star-Bulletin, which had been in a JOA with Gannett's Honolulu Advertiser.
"I don't think anyone would suggest it's (the Star-Bulletin) a success yet, and it's pretty pared down," said van Essen, who brokered the deal. "But it's still going, and it looks like its old self."
William Andersen, an antitrust expert at the University of Washington Law School, said Hearst would need to make "a plausible showing" of attempting to sell the P-I before shutting it as a failing company.
"The usual understanding in law is that if A wants to merge with B, and they're the only competitors, one has to show it's a failing company," Andersen said.
"One way to do that is to put it up for sale," he said. "If no one wants it, the assumption is that it's not viable."
Putting the paper for sale comes as Hearst and The Times prepare for a Sept. 12 court hearing on the suit. Hearst is trying to prevent The Times from invoking a JOA provision that would force both papers to negotiate a shutdown of one of them after either records three consecutive years of losses.
In April, the day after Hearst filed its suit, The Times notified Hearst that it had lost money in 2000, 2001 and 2002.
Times spokeswoman Kerry Coughlin declined comment on Hearst's latest move.
Elizabethe Brown, administrative officer of the Pacific Northwest Newspaper Guild, said the union planned to call immediately for Hearst to begin labor negotiations as a result of the potential sale.
The union, which represents employees at both papers, had asked Hearst in July to begin talks over severance pay, retirement benefits and other such issues. Last week, Hearst told the union any bargaining would be "premature."
"It's not premature any more," Brown said. "It's time to talk to us about the effects of this on our employees."
Brown said if Hearst attempts to deflect negotiations again, the union would take its demand to the National Labor Relations Board.
P-I employees were notified of Hearst's move yesterday in a brief announcement by the paper's publisher, Roger Oglesby.
Oglesby declined to comment, citing the litigation between Hearst and The Times.
"I don't think people are running for the exits yet," said P-I reporter Neil Modie.
Modie said some employees hope Hearst will win its lawsuit and keep the P-I open.
"There's a feeling that if anyone can save the paper, the court can," he said. "Nobody else is in sight."
Bill Richards is a free-lance writer hired on a special contract by The Seattle Times to cover events involving the joint-operating agreement with the Seattle Post-Intelligencer. He can be reached at email@example.com