Financial problems at the Seattle Times Co. and its Blethen Maine Newspapers subsidiary are so severe that if the cash-strapped company cannot soon sell the Maine division, it might have to shut it down, leaving that state's largest city and two smaller ones, including the state capital, without daily newspapers.
That bleak assessment is by Charles Cochrane, Blethen Maine's chief executive, in a nine-page affidavit [279K PDF] filed Tuesday, July 29, in U.S. District Court in Portland, Maine. Cochrane's affidavit and other documents are part of a lawsuit filed by the Seattle Times Co. against the Portland Newspaper Guild.
On Wednesday, July 30, Blethen Maine Newspapers announced a letter of intent had been signed to negotiate the sale of the chain to Maine Media Investments, a syndicate of prospective buyers that includes former U.S. Sen. and Defense Secretary William Cohen. In a statement announcing the letter of intent, Seattle Times Co. Chief Executive Frank Blethen predicted a sale would result in a "seamless and timely" ownership transition for the Maine chain to the locally based group. A headline today, Aug. 1, in the Portland Press Herald, the chain's flagship, proclaims: "Potential buyers say the Portland Press Herald/Maine Sunday Telegram have a healthy future."
But Cochrane's affidavit characterizes a potential sale to Maine Media Investments as "highly uncertain." And his and other documents paint a grim picture of the financial situation at the Maine papers and their Seattle corporate parent:
Both the Seattle Times Co. and the Blethen Maine subsidiary are losing money at an accelerating rate, with losses likely at both units this year and the prospect of a Seattle Times Co. default on loans growing.
Cash flow at Blethen Maine Newspapers plummeted more than 88 percent during the first six months of this year over a similar period in 2007. The chain's advertising revenue during that period fell 19 percent, and overall revenue was down 12 percent.
Finances at both the Maine chain and the corporate parent are so dismal that the Seattle Times Co. might have to start pulling capital out of the Maine operation to cover the parent company's mounting legal costs from the fight with the Portland Newspaper Guild.
Cochrane's affidavit calls the potential sale of the chain uncertain because it requires the Portland Newspaper Guild to agree to renegotiate a labor contract with the prospective buyer. The union and the Seattle Times Co. disagree on the meaning of the contract with regard to continuation of the agreement under new ownership — hence the lawsuit.
If the Seattle Times Co. cannot keep the sale process moving rapidly forward, Cochrane's affidavit says, the value of the chain's assets will drop "precipitously," reaching a point where the Times Co.'s lenders won't approve any sale and instead could foreclose and seize the chain's assets.
"If the lenders choose to foreclose on [Blethen Maine] then a large percentage of [the chain's] workforce would likely be laid off," or the chain might be shut down altogether, Cochrane said.
In addition to the Portland Press Herald and Sunday Maine Telegram, the Seattle Times Co. owns the Kennebec Journal in state capital of Augusta, the Morning Sentinel in Waterville, and MaineToday.com.
According to the filings, the Times Co. began preparing to sell the Maine chain in January. The sale was made public by Blethen in a tearful address to Portland Press Herald staffers in the paper's newsroom in March. About 30 prospective buyers contacted Dirks, Van Essen & Murray, the broker hired by the Times Co. to shop the chain, but Cochrane's affidavit said the list of prospects has dwindled to only the group that includes Cohen, Wilkes-Barre, Pa. publisher Richard Connor, and two Maine businessmen, including the brother of Maine Gov. John Baldacci.
In his affidavit, Cochrane calls the prospect of a deal with Maine Media Investments "highly uncertain." The group is seeking to convince the Portland Newspaper Guild to renegotiate a collective bargaining agreement with Blethen Maine that runs through 2011. A clause in the agreement says it "shall inure to the benefit of and be binding upon the successors and assigns of the Publisher." The union maintains that means the contract should extend to new owners. The Times Co. has sued to clarify that and force the union to arbitrate it. The union has threatened to get a restraining order against any sale.
According to people involved in the negotiations between Maine Media Investments and the union, the buyers have offered the union a modified ownership position in return for the Guild backing off on some of the contract provisions. The union, which previously explored buying the Blethen Maine chain outright, would not provide any cash to the deal.
Dennis Bailey, a spokesperson for Maine Media Investments, told Crosscut the group only got the court filings yesterday. "We're aware of the language and it's quite dire," Bailey said. "But we're not surprised." A former Press Herald reporter, he said some of the information had been conveyed to the buyer group in discussions with Cochrane and Blethen. "I don't know if we knew the actual numbers, and they may influence the negotiations, but we're still working on a proposal," he said.
Bailey said the group may offer to assume some of the Seattle Times Co.'s debt in its offer. As for who will put up cash for the group's proposal, he said, "We don't know yet. We've got some potential financial sources but nothing is nailed down yet." Bailey said it isn't clear if the group would have to borrow money to buy the chain.
Blethen Maine is preparing a fourth round of layoffs at the Press Herald later this month. But Cochrane's affidavit warns that if the sale of the chain does not go through, things could get even worse. "If BMN [Blethen Maine Newspapers] is not able to sell its assets," Cochrane's affidavit says, "it will have to implement even more drastic cost-cutting measures, and the consequences for BMN, STC [the Seattle Times Co.], and its employees will likely be severe."
"Without a sale," Cochrane said, "it is even possible that BMN would be dismantled altogether, which would put all of BMN's employees — including the Union's members — out of work."
Cochrane said the Maine chain is currently using all its cash "just to keep the operation running." The chain, he said, does not have enough revenue to pay down the Seattle Times Co.'s bank debt. The Times Co. does not disclose its finances. It is privately owned, with 50.5 percent of the company's voting shares held by the Seattle-area Blethen family and the remainder owned by publicly traded McClatchy.
In 1998, the Seattle Times Co. borrowed $230 million from a syndicate of banks to buy the papers in Maine, where the Blethen family has ancestral roots. The Times Co. has not disclosed how much it still owes the banks.
Times officials did not respond to Crosscut's request for comment on the Maine court filings.