A Seattle Times Co. lawsuit reveals a tightening noose

The company is suing a union, saying the sale of three newspapers in Maine won't happen if the buyer must inherit a labor agreement. The proceeds of a sale are urgently needed to satisfy lenders, the lawsuit says.
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The company is suing a union, saying the sale of three newspapers in Maine won't happen if the buyer must inherit a labor agreement. The proceeds of a sale are urgently needed to satisfy lenders, the lawsuit says.

The Seattle Times Co.'s most pressing problem these days is 2,490 miles away — the so-far-unsuccessful effort to sell the Blethen Maine newspaper chain. In papers filed in federal court in Portland, Maine, last week, the Times Co. warned that if a Maine sale doesn't happen soon, the company might face far more serious financial problems at home in Seattle.

In March, the Times Co. said it planned to unload Blethen Maine — the Portland Press-Herald and Sunday Maine Telegram, the Kennebec Journal in Augusta, and the Morning Sentinel in Waterville — to offset plunging print advertising revenue. As of last month, advertising revenue at the chain's Portland flagship was down more than 18 percent from last year, according to a memo circulated to the staff by the company's Maine chief executive, Charles Cochrane.

The Maine papers have already had several rounds of layoffs and cost-cutting, and Cochrane, who announced a new staff reduction May 30, said in his memo that weak ad revenue could mean still more cuts to come.

But a lawsuit filed by the Times Co. against the Portland Newspaper Guild in U.S. District Court June 17 offers a more detailed, and grimmer, look at the Seattle Times Co.'s overall financial woes. Unless the company finds a buyer soon for the Maine papers, the lawsuit warns, the Times Co. faces default on hefty bank loans. That debt includes the remainder of the $230 million the Times Co. borrowed a decade ago to buy the Maine papers. The privately owned Seattle Times Co. won't say how much it still owes of that, but there's also another $24 million the company borrowed last year to settle a legal fight with Hearst Corp. Hearst owns the Seattle Post-Intelligencer, which is the joint operating agreement (JOA) partner of The Seattle Times.

"The sale proceeds are needed," the lawsuit in Maine says, "to reduce bank debt and avoid the dire consequences of being in default."

The litigation with the Portland Guild centers on whether the company can ignore part of a three-year agreement it signed last year with the union, which represents more than 600 Blethen Maine workers. The union agreement, the company claims, makes the properties unattractive to potential buyers.

The Times Co. already has defaulted twice on bank debt since 2000. Both times, the consortium of banks holding the note allowed the company to refinance. But the lending group was reconfigured last year, with Bank of New York taking over from Citibank as lead lender. Bank of New York is pressing the Times Co. to increase its cash reserve to cover the current debt.

While the Seattle Times Co. faces the same financial and structural problems that have beset the entire newspaper industry, its current financial bind has been made worse by several costly business decisions over the past decade. Industry experts say the Times Co., which is controlled by the Seattle-area Blethen family, vastly overpaid for the Maine papers in 1998 and stands little chance of recouping more than a fraction of the purchase price. A challenge to the company's Seattle newspaper unions shortly before the 2000 holiday season resulted in a 49-day strike and $50 million in lost revenue. And a unilateral decision to end the JOA with the P-I in 2003 cost another $24 million to settle, plus millions more in legal fees.

The Maine purchase, made against the wishes of the company's then-minority shareholder, Knight Ridder, has been especially costly. The Seattle Times Co. has already sold two real estate parcels in Seattle to raise cash to satisfy lenders. Now, with the banks demanding another quick cash infusion, no solid prospective buyer for the Maine papers, and revenue dropping at its other daily papers in Seattle, Yakima, and Walla Walla, options are starting to dwindle for the company and the Blethen family, which owns the 50.5 percent controlling interest.

The Seattle Times Co. does have assets it could sell fairly quickly. It owns a profitable commercial printing company in Kent, Wash., and about six acres of prized downtown real estate near its headquarters in the South Lake Union neighborhood. But selling those valuable assets could leave The Seattle Times itself vulnerable if the newspaper business continues to flounder. Times Publisher and Chief Executive Frank Blethen has said the company won't sell, but McClatchy Corp., which owns the other 49.5 percent of the Times Co., said last month it would be willing to sell its minority stake at some point. And Hearst has paid $10 million to the Blethens for first bidding rights if they decide to put the controlling share of the company on the block.

All that has put heavy pressure on the Times Co. and the Blethens to stifle the dispute with their obstreperous Maine union.

Union officials cite the language of the 2007 contract, which says the agreement with the Times Co. is "binding upon the successors and assigns of the Publisher" to 2011. The contract clearly passes legal muster, the union says, and any effort by the Times Co. to sell Blethen Maine without adhering to it could trigger an injunction to block the sale.

In its lawsuit, Times Co. attorneys call the union's position "strained" but don't elaborate. The union's interpretation of the contract's wording, the company says, "is simply not what the contract says."

The lawsuit accuses the Maine union of dragging its feet. The company says it needs a quick resolution to "an urgent dispute of critical importance." Unless the Guild local allows a new owner of the Maine chain to ignore the union's contract, nobody will buy the papers, the Times Co. claims, and the company "may default on a bank loan, exposing [Blethen Maine] to the lenders' potential remedies."

To date, three newspaper companies — Black Press of Victoria, B.C., Fairport, N.Y.-based Gatehouse Media, and Wilkes-Barre Publishing Holdings, based in Pennsyvania — have indicated interest in the Maine chain's financials. But according to the Times Co. lawsuit, all three say they want nothing to do with inheriting the union contract.

Michael Messerschmidt, the attorney representing the Times Co. in Portland, referred Crosscut's questions about the lawsuit to Blethen Maine's Cochrane. Neither Cochrane nor Times Co. officials in Seattle replied to Crosscut's requests for comment.


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