Under the startling headline "After Dow Jones deal, Fortress engineers GateHouse bankruptcy and media spin-off", Jon Chesto of the highly respected Boston Business Journal says, "Wes Edens, a principal at GateHouse backer Fortress Investment Group, unveiled plans today to ship GateHouse into a Chapter 11 bankruptcy next week to unshackle it from that massive debt burden".
A monopoly of Massachusetts newspapers
As an example of how bankruptcy can be used to unburden debts - and it this case take on more debt - Chesto's article goes on to spell out in brutal detail a strategy to create a major new media company which will control nearly every daily newspaper in Southeastern Massachusetts and in Boston’s western suburbs, as well as most weeklies in the entire eastern third of the state.
Edens says he hopes to get the bankruptcy and spin-off wrapped up by sometime in December.
Jack Coleman, a NewsBusters writer and former employee of both Ottaway and GateHouse said, "I suspect that GateHouse ploy of shedding debt through bankruptcy -- while taking on more debt with new acquisitions -- won't survive legal challenge from their creditors. They will argue that GateHouse must pay them first before buying new media properties."
Ottaway group is about a third of the size of GateHouse
Among the details in Chesto's article is the fact that the former Dow Jones Local Media Group (LMG) which includes two dailies in Massachusetts (the Cape Cod Times and The Standard-Times) among its eight dailies. The LMG also owns 15 weeklies. That group earned a third of what Gatehouse Media earned last year.
The News Corp. Local Media Group generated $167 million in revenue in 2012 and reported $137 million in expenses while its new owner GateHouse posted nearly $490 million in revenue last year, with cash flow of more than $80 million.
GateHouse has lost more $80 million in the past 2½ years. The company lost $14.1 million on revenue of $119.6 million for the quarter which just ended June 30, 2013.
Wall Street Journal agrees - Gatehouse weeklies "struggling"
Rupert Murdoch's Wall Street Journal in an article today backs up Chesto's claims saying GateHouse, which operates a struggling chain of local newspapers and publications in smaller markets, has been working toward a restructuring for months.
WSJ goes on to state that Evens plans to combine the Dow Jones Local Media string of publications with GateHouse's existing holdings into a new company, to be called New Media.
Even Wes Edens, a Fortress co-founder admits "It is a little bit unusual to file a company for bankruptcy and file it for a spin at the same time".
Read the Boston Business Journal article here.
Read the the Wall Street Journal article here.