The investment group with controlling interest in GateHouse Media Inc. said Wednesday it will seek court protection for the newspaper chain by the end of next week.
"The company is overleveraged, as many companies are in the sector," said Wes Edens, principal and co-chairman of Fortress Investment Group, whose affiliate Newcastle Investment Corp. purchased the Dow Jones Local Media Group, which includes the Mail Tribune and Ashland Daily Tidings, from News Corp. on Tuesday.
Speaking with investors on a conference call, Edens said a prepackaged Chapter 11 bankruptcy court filing could come as early as Sept. 11. He said 90 percent of the firm's debt holders have agreed to a restructuring plan that will allow debt to be converted into equity.
"It's a very, very straightforward process with the company coming out 60 to 75 days afterwards," Edens said.
Earlier Wednesday, Newcastle Investment Corp. said it paid $82 million for Dow Jones Local Media Group. All told, the deal cost Newcastle $87 million, including $5 million in expenses.
GateHouse Media will manage the Local Media Group, but the group will not be part of the bankruptcy filing.
Edens said the former Dow Jones newspapers, along with GateHouse's 400 community publications and 350 websites, will be spun off into a publicly traded venture called New Media. He said Newcastle has whisked up GateHouse bonds at discounted prices during the past nine months, making it GateHouse's largest creditor, with 52 percent — or $626 million — of the company's $1.2 billion debt.
"There's a huge amount of value unlocked by doing this," he said of going into the bankruptcy and ridding the company of the debt burden.
Edens said he expected GateHouse to emerge from bankruptcy in late November or early December. At the end of process, Newcastle Investment shareholders will receive one share of Newcastle stock and one share of New Media.
Along with the newspapers, New Media would include local directories, such as Yellow Pages, and Propel, a digital marketing services provider.
Edens said the new entity would offer substantial opportunity to grow business by buying local newspapers and directories at attractive prices.
In a presentation to investors, Newcastle said community newspapers remain essential information portals, offering vital local content.
More than 80 percent of readers rely on local newspapers, and existing infrastructure and trust create barriers for competition. The newspaper industry has added revenue streams, with 35 percent of total revenue now coming from non-advertising sources, up from 18 percent in 2005.
Edens said the print industry's financial struggles have created opportunity for investors.
Newcastle's presentation showed more than 80 sales involving print media companies, with a transaction value of $5 billion, have been completed since 2009. So far in 2013, the figure is $2 billion.
Newcastle said Local Media Group publications such as the Mail Tribune were in a dominant position within their markets and possessed valuable real estate. While the newspapers are insulated by distance from metro-area competition, they remained close enough to benefit from their economic base.
At the same time, Newcastle noted, the chain was "under-managed by News Corp," with digital revenues more than 50 percent below industry norm, incurred expense reductions of only 6 percent since 2010, and earnings before interest, taxes, depreciation and amortization showing a 40-percent decline during the past three years.
GateHouse CEO Mike Reed said Propel would allow local businesses to outsource their marketing and IT departments to newspapers.
"There are a lot of mom and pops that don't have IT departments," Reed said, "and we can help them to understand and navigate through a new environment."
Reach Mail Tribune reporter Greg Stiles at 541-776-4463 or firstname.lastname@example.org. Follow him on Twitter @GregMTBusiness.