Honolulu Advertiser owner Gannett partly financed sale to rival
By Rick Daysog
Advertiser Staff Writer
Gannett Co., the owner of The Honolulu Advertiser, is helping to finance the Honolulu Star-Bulletin's purchase of its crosstown rival, according to an executive involved in structuring the deal.
Gannett — which publishes 83 daily U.S. newspapers, including USA Today — is providing more than $40 million to help Oahu Publications Inc., owner of the Star-Bulletin, purchase The Advertiser, said the executive, who declined to be further identified due to a confidentiality agreement.
David Black, the owner of Oahu Publications, stunned the local business community last week when he announced that he was acquiring The Advertiser, its Web site, its nondaily publications and its $82 million printing plant in Kapolei. Black said he would sell the Star-Bulletin and, if no taker were found, would consolidate the two dailies in a move that will lead to layoffs.
Meanwhile, Honolulu's proposed combination of daily newspapers could end up being called the Honolulu Star-Advertiser.
Oahu Publications this week sought to register the name Honolulu Star-Advertiser with the business registration division of the state Department of Commerce & Consumer Affairs. Oahu Publications also registered the Internet domains www.star-advertiser.com and www.honolulustar-advertiser.com.
Seller financing is becoming a more common method of doing deals in the wake of the global financial crisis, media analysts said. But Gannett's decision to help bankroll Black's purchase of the state's largest newspaper could raise questions as to why Gannett chose to help its smaller competitor with financing.
"This was a very, very difficult decision for the Gannett Co. after many years of owning The Advertiser and a very successful relationship," said Gannett Senior Vice President Evan Ray when he announced the sale of the paper in The Advertiser newsroom on Feb. 25. "Oahu Publications made a very substantial and attractive offer for The Advertiser. From a fiduciary responsibility standpoint to our shareholders, it was the right thing to do."
In telephone interviews this week, Ray said he was not aware that Gannett was providing financing for Black. He referred questions about the deal to the company's headquarters. Gannett spokeswoman Robin Pence did not return calls for this story.
Dennis Francis, the Star-Bulletin's publisher, also referred questions to Gannett.
The deal, whose terms were not disclosed, is expected to be completed this summer pending approval from the U.S. Justice Department's antitrust division.
In addition to financing from Gannett, Black has partnered with Fairfax Financial Holdings Ltd. of Toronto, Ontario, which is investing about $40 million in the deal, said the executive involved.
The exact amount of financing that's being provided by Gannett was not available, but the executive said it's more than Fairfax's $40 million.
"I'm shocked that Gannett would be financing the deal," said Wayne Cahill, administrative officer for the Hawaii Newspaper Guild, which represents The Advertiser and Star-Bulletin employees. It's odd the bigger competitor is financing a takeover by the smaller competitor, Cahill said.
He also said it was surprising given how fiercely the two companies were competing since 2001 when they ended a joint operating agreement that allowed them to share a printing press and sales staff.
Cahill said he expects the Justice Department to take a close look at the financing arrangement in its antitrust review of the sale.
According to the executive involved in the deal, Gannett is providing what's known as take-back financing, which is secured by properties owned by The Advertiser. Black, in turn, makes regular payments on the loan.
Such financing was unusual four or five years ago when it was much easier for a media company to get a bank loan. But with the recent bankruptcies by the owners of the Minneapolis Star-Tribune, the Philadelphia Inquirer and other newspaper companies, banks have tightened credit to the industry.
These days, borrowers would be hard-pressed to find a loan of $25 million or more to finance a media deal, media experts said.
Banks used to provide loans valued at six to eight times a newspaper's cash flow. Now they are making loans in the range of two to three times cash flow, said Alan Mutter, a former newspaper and cable industry executive who writes a blog on the news industry called Reflections Of a Newsosaur.
"It's a function of the credit markets," added Barry Lucas, an analyst with Gabelli & Co. in New York. "It's not just newspapers."
If Oahu Publications doesn't find a buyer for the Star-Bulletin, its merger with The Advertiser will likely wrap up this summer under a process that could result in layoffs of most of The Advertiser Staff and a name change for The Advertiser reflecting the consolidation.
Francis, who would be publisher of the combined paper, was unavailable late yesterday to comment about the potential name.
The proposed combination of Honolulu dailies has resulted in speculation on several Internet domain names involving the combination of The Advertiser and Star-Bulletin names.
The www.honolulustaradvertiser.com and www.honoluluadvertiserstar.com Internet domains both were registered following the announcement of The Advertiser's sale on Feb. 25. Both Web sites were registered via a proxy service that allows the owners to remain anonymous.
The domain advertiser bulletin.com was registered by Steven Barta of Honolulu on Feb. 27. Barta would not comment for this story yesterday afternoon.Advertiser Staff writer Sean Hao contributed to this report. Reach Rick Daysog at 525-8064 or rdaysog@honoluluadver tiser.com.