BREAKING: Strib Bankruptcy Article Fallout -- Who is the Blackstone Group? UPDATE x9


THE STORY SO FAR: On Sunday, the New York Post claimed the Star Tribune of Minneapolis was on the verge of bankruptcy. Publisher Chris Harte issued a memo denying bankruptcy but acknowledging the hiring of the Blackstone Group for help restructuring finances. Strib staffers were stunned. Now comes news that the Blackstone Group took a hit on the failed Yahoo! deal this weekend. Meanwhile, Strib owners Avista Capital Partners just made a big purchase in the medical sector.

As you'll see below, Avista Capital Partners, the owner of the Strib, agreed on Friday to the $4.1 billion purchase of a piece of Bristol-Myers Squibb. This, combined with the news of Blackstone Group's involvement in the Strib's assets, may signal a shift by Avista out of the media sector (which is tanking) and toward more heathcare holdings, which are already a major part of its portfolio.

Sunday was anything but a day of rest for the Strib. First came a report in the New York Post alleging that the newspaper was on the verge of bankruptcy and Avista Capital Partners stood to lose its entire $100 million investment. Next I contacted Strib Publisher Chris Harte, who promptly issued a statement. While Harte denied the bankruptcy rumors, he acknowledged that the newspaper had indeed hired the Blackstone Group, as had been alleged.

"We recently hired the Blackstone Group to help us evaluate alternatives to our current capital structure, but that hardly merits a conclusion that we are near bankruptcy," Harte said in a statement released shortly after 6 p.m. Sunday evening. "In fact, Blackstone has substantial expertise in balance sheet restructurings through means other than statutory proceedings like bankruptcy."

Although Harte denies it, a knowledgable source tells me that you don't hire Blackstone to restructure your balance sheet when you have sufficient liquidity to continue meeting your obligations. Also, note that Harte's statement reads: "The facts are that the Star Tribune currently has sufficient liquidity and is current on all its debt payment obligations." Emphasis mine.

The Latest:


UPDATE 6: City Pages interview with Duchesne Drew, the Star Tribune's assistant managing editor for local news:

I see you guys are covering the story on the front page of the business section today.

I expect we’ll do more tomorrow about it. It’s no secret [that the Strib is going through tough times financially]. My expectation is that we’re still going to be here six months and six years and hopefully 60 years as well.

What did you think of the NY Post article? I don’t know what to make of the Post article, cause I don’t know who his sources are. I don’t want to be overly dismissive of it, but I also didn’t read it and think I need a new job.

What was the reaction in the newsroom?

I think most people were surprised by the story in the Post. The mood here is not … nobody’s packing boxes. It’s not news to us that circulation is down, but it’s not plummeting, it’s just down. What’s telling … our circulation fell in the last cycle and we moved up in the rankings. So it’s something our entire industry is going through. It isn’t really news to us in terms of the challenges we’re facing.

What do you know about the allegation of an impending bankruptcy? I don’t think anybody on the third floor is in a position to speak with authority about what the financials are. I don’t have access to the level of detail that Chris Harte and Avista has. I came in this morning and the lights were on. In the end, none of us really knows what the challenges will be. … Nobody predicted this a year ago.

What do you know about the Blackstone Group? I don’t know what to make of it. It doesn’t really concern me to be honest with you. We were bought by a private equity firm a year ago (Avista), and that was a gamechanger in itself. … We’re still hiring, we’re building a TV studio, we’re doing a whole bunch of other things … We’re doing all the things we should be doing to still be around and still be a vital part of this community.

UPDATE 7: The Blackstone Group dropped from tenth to 35th in the global mergers and acquisitions rankings after the collapse of the Yahoo! deal this weekend:

Yahoo! deal collapse hits rankings for Morgan Stanley and Blackstone

By Shanny Basar 05 May 2008

Morgan Stanley has moved down one place and the Blackstone Group has dropped from tenth to 35th in the global mergers and acquisitions rankings after the collapse of this year’s largest announced acquisition.

At the beginning of February, Microsoft announced a $44.6bn (€28.8bn) bid for Yahoo! using Morgan Stanley and Blackstone as advisors.

The deal was the largest global acquisition announced this year according to Dealogic, the investment banking research provider.

Yahoo! appointed Goldman Sachs, Lehman Brothers and Moelis & Company, the independent boutique set up last year, for its defense.


The Yahoo! board rejected the deal in February and again this weekend despite Microsoft improving its bid.

Update 8: Meanwhile, Avista Capital Partners, which owns the Strib, announced Friday that it's buying part of Bristol-Myers Squibb:

NEW YORK - (Business Wire) Bristol-Myers Squibb Company (NYSE:BMY) announced today it has signed a definitive agreement to sell its ConvaTec business unit to Nordic Capital Fund VII (“Nordic Capital”) and Avista Capital Partners (“Avista”) for $4.1 billion subject to adjustments based on ConvaTec’s audited 2007 financial statements and closing working capital. ConvaTec is a world leader in the development and marketing of innovative wound therapeutics and ostomy care products. ... Nordic Capital and funds associated with Avista have severally guaranteed the obligations of the newly formed purchaser under the purchase agreement. The purchaser has entered into a fully committed loan agreement which provides for funding by the lenders with no material conditions other than the conditions under the purchase agreement and customary conditions relating to the delivery of closing documents and financial information as well as conditions related to the status of the purchaser.

UPDATE 9: Strib union memo reacts to news (hat-tip: Brauer again):

Guild Members:

By now, most of you have heard of the Star Tribune's engaging Blackstone to advise Avista in restructuring its debt. The New York Post story hinted that the company is headed toward bankruptcy — which Chris Harte denies. What does this mean for Guild negotiations?

It means they will still start later this week, on schedule.


We have been keenly aware of the company's financial situation for some time. Nothing has changed with that. We will continue to focus on our issues and make every attempt to get the best deal possible given the current climate.

The principal lesson we have learned in the past several months is that we should expect the unexpected. We will maintain that point of view, and keep ourselves aware of the implications of whatever financial crises — real or imagined — crop up. The timing of the Post story days before negotiations are about to begin seems a bit curious to us. However, we need to stay calm and go about our business in negotiations.

Graydon Royce and David Chanen, co-chairs

Earlier updates and a primer on Blackstone after the jump ...

UPDATE 1: Wow, the Strib just updated their article with new information, and it does not look good (emphasis mine):

"The Star Tribune currently has sufficient liquidity and is current on all its debt payment obligations," Harte said in a statement issued Sunday afternoon. Pressed further, he said the newspaper would not miss a debt payment this year unless things worsened.

Harte said he is in frequent contact with lenders, including Credit Suisse.

None of them wants to take over the newspaper, he added, which could be a possible outcome of a bankruptcy filing.

Unless things worsened? What kind of weasily words are they? Of course things are going to worsen. The economy is in the toilet, especially for media. It's widely known that the second quarter is going to be particularly painful. It's almost as if Harte is conceeding and giving his paper the scoop that it's going under.

Strib media writer Matt McKinney fires a shot across the bow of the new boss:

Blackstone cuts a high profile among Wall Street's private equity firms thanks to its CEO, Stephen Schwarzman, who last summer rode a wave of unflattering media coverage following revelations that he made $677.2 million in cash taking his company public while holding shares worth nearly $8 billion. Schwarzman's haul inspired congressional hearings for higher taxes on private equity firms.

UPDATE 2: As noted by a commenter, the Strib is about to go into labor negotiations. This has given rise to suspicions that Sunday's action was some kind of scare tactic on the part of management. While I don't think that's what's behind this--there's way too much shrapnel for this to be an idle threat--here is the part of McKinney's article that talks about that, which also includes a view of what it must be like in the Strib's newsroom today:

Earlier this year, the company hired Restructuring Associates Inc., a Washington, D.C., consulting firm, to work with the Star Tribune's unions to identify areas for savings and prepare for upcoming labor negotiations. Contract negotiations will begin this week with the Newspaper Guild, the paper's largest union, which represents employees in the newsroom and editorial departments as well as some in promotions and circulation.

"It's kind of disquieting to read about your company in the New York Post," said Graydon Royce, cochair of the guild's Star Tribune unit. "We have to find out what the truth is here, because we're going into negotiations and it's a period that's probably one of the most critical in the Star Tribune's history."

UPDATE 3: This is not a good day to wake up at the Star Tribune. If you go to Google News and type in "Blackstone Group," this is what you get:

Star Tribune denies bankruptcy report, NC - 30 minutes ago The Minneapolis Star Tribune may be on the verge of bankruptcy, according to a report in the New York Post on Sunday. The paper disputed the report, ...

Minneapolis Star Tribune Disputes Being 'On the Brink of Bankruptcy' Wall Street Journal - 1 hour ago AP MINNEAPOLIS -- The Star Tribune of Minneapolis has hired a private equity firm to advise it, but disputed a published report suggesting it is "on the ...

'Star Tribune' Disputes Report It Is Near Bankruptcy Editor & Publisher - 11 hours ago MINNEAPOLIS The Star Tribune has hired a private equity firm to advise it, but is disputing a published report that says it's "on the brink of bankruptcy. ...

Star Tribune publisher denies dire report Pioneer Press, MN - 59 minutes ago By Nick Ferraro The publisher of the Star Tribune on Sunday denied a New York Post report that the Minneapolis paper is on the brink of bankruptcy. ...

Star Tribune Hires Blackstone for Restructuring Help New York Times Blogs, NY - 3 hours ago The Minneapolis Star Tribune said Sunday that it has hired the Blackstone Group to evaluate its finances, following a report in The New York Post that the ...

Star Tribune hires Blackstone Group to analyze its finances Trading Markets (press release), CA - 6 hours ago -- Faced with sliding advertising revenue amid a continuing slowdown of the newspaper industry, the Star Tribune said Sunday that it has hired an adviser to ...

Strib Bankruptcy Article Fallout: Who is the Blackstone Group? Minneapolis City Pages, MN - 11 hours ago Sunday was anything but a day of rest for the Strib. First came a report in the New York Post alleging that the newspaper was on the verge of bankruptcy and ...

UPDATE 4: More explanation courtesy of a knowledgable source: The Strib may be able to restructure the balance sheet somehow in order to avoid a full bankruptcy filing, but that means you have to get cash from somewhere. Now, who is going to inject cash into a highly-leveraged asset with declining cash flows? No one. So what do you do? You can try to get Avista to give up some of their equity ownership to the banks in exchange for their debt (that's what they mean by restructuring the balance sheet) but the banks don't want to own a slice of a newspaper that can't turn itself around. They would rather take control and try to sell it for cheap. Just like a house in foreclosure. In that case, Avista's investment would be wiped out.

The fact is that you don't hire Blackstone to restructure your balance sheet when you have sufficient liquidity to continue meeting your obligations. It's like someone with a large credit card bill, who tries to negotiate with the credit card company to erase some of his debt. Now, that person may not have to file bankruptcy, but they certainly don't believe they have enough cash to pay back the debt. Otherwise, what basis do they have to ask the creditor for some concessions.

UPDATE 5: Chris Harte issued this memo to Strib employees this morning (Hat tip: David Brauer at MinnPost):

This is not the way I prefer to greet you on Monday morning, but a story in the New York Post over the weekend requires a direct and corrective response. I am writing to reassure you unequivocally.

The Post reported that the Star Tribune has failed to meet its debt obligations and alleged that we are "on the brink of bankruptcy." We have no idea where this information came from, but we do know it is not accurate.

The facts are that the Star Tribune currently has sufficient liquidity and is current on all its debt payment obligations. You know that we face declining ad revenue, and you are well aware of all the steps we have been taking to get our cost structure in line with current revenue shortfalls. There is absolutely no doubt that we are in the toughest times this company and this industry has ever faced. But it is quite a leap to say we are "on the brink of bankruptcy."

We talk to our lenders frequently and constructively about the state of our business. They know that our business is in a different place than when they loaned us money, and they know why. We are in this together, and our lenders very much still want us to succeed.

As part of our problem-solving process, we recently hired the Blackstone Group to help us evaluate alternatives to our current capital structure, but that hardly merits a conclusion that we are near bankruptcy. In fact, Blackstone has substantial expertise in balance sheet restructurings through means other than statutory proceedings like bankruptcy.

None of the current discussions we are having about our financial structure has any effect on our current operations. We are generating positive cash flow and paying our bills.

The most important thing we can do right now is to stay totally focused on keeping our 140-year-old franchise in its market leadership position by putting out the best and most comprehensive news and Internet products in this region. We cannot be distracted by speculation about our future.

It's true we have big challenges and many struggles ahead. I can't begin to predict how all this will play out, and neither can anyone else — especially the New York Post. But I can predict that our best strategy for a successful outcome is to stay focused, day-in-and-day-out, on building our business through outstanding service to our readers and advertisers — regardless of what hand the economy deals us. I know with high confidence that we have the people and the resources to do that.



The Blackstone Group is hardly the paragon of good corporate citizen. In fact, it has been accused of predatory investing by no less of an authority than the Star Tribune:

The Blackstone Group by itself reportedly has $98 billion worth of assets under management. KKR has $86 billion. About $600 billion in buyouts were announced in the first half of 2007. Yet there are honest questions regarding the role of what is often predatory investing. …

Although many of us might rejoice at the sudden reversal of fortunes for the predatory investors, we may find that the bulk of this misfortune will fall upon others, rather than to the managers of the private investment funds. The two founders of Blackstone, for instance, sold $2.6 billion of stock during that company’s initial public offering in June.

From Wikipedia:

Blackstone Group (NYSE: BX) is a company that provides private equity, financial advisory, and investment management services. The company is based in New York City, with offices in Atlanta, Boston, London, Hamburg, Paris, Mumbai and Hong Kong. One of the world's largest private equity firms, it is part of the migration of companies from public to private hands — a total of some US$370 billion in deals in the United States in 2006.

From Blackstone's website:

Restructuring and Reorganization Advisory

Our restructuring and reorganization advisory operation is one of the leading advisers to companies and creditors in restructurings and bankruptcies. Since 1991, we have advised on more than 150 distressed situations, both in and out of bankruptcy proceedings, involving more than $350 billion of total liabilities.

You can find the NY Times take on the company here.

If the Blackstone Group is supposed to bring stability, it might not help that it's under attack itself:

NEW YORK (MarketWatch) -- Alliance Data Systems Corp. said late Friday [April 18] that it is suing Blackstone Group LP for $170 million over the private-equity giant's alleged breach of a merger agreement.

ADS 58.83, +0.42, +0.7%) , a Dallas-based marketing services firm, also formally announced the termination of the planned acquisition by affiliates of Blackstone. The deal, announced in May 2007, was said to be worth over $6 billion.


Blotter recently reported that another 58 layoffs were coming at the Strib.

January saw the release of a grim memo about the paper's future.

December was marked by the resignation of embattled publisher Par Ridder.

For a complete summary of the troubles leading up to this, complete with an inside-the-court view of the Par Ridder case, read Trials and Stribulations.