JimmyCsays: At the juncture of journalism and daily life in KC

News reports have been floating around the last few months about the possibility of McClatchy, The Star’s deeply indebted owner, buying another newspaper chain, Tribune Publishing, which owns The Chicago Tribune and several other large papers, including the Orlando Sentinel and the Ft. Lauderdale Sun-Times.

On Friday, Bloomberg reported McClatchy was one of three companies that had submitted bids for Tribune, and that Tribune’s board is scheduled to meet early next week, possibly to consider the bids. I’ve seen estimates of a sale bringing $640 million to $700 million.

…But as far as McClatchy is concerned, allow me to put this story in perspective…Ha! Ha! Ha!

(I could have added several more exclamation points, but it would have taken up valuable digital space.)

Not only can a newspaper chain with an $800 million debt not buy another newspaper chain, it can’t afford new office furniture.

Here are a couple of facts that illustrate the point:

— McClatchy has a stock market capitalization (total value of all outstanding shares) of about $57 million; Tribune’s market capitalization is about $570 million. So, we’re talking about one company buying another 10 times its size in terms of valuation.

— This is not the first time McClatchy’s eyes have been bigger than its stomach. Remember what happened after relatively small McClatchy bought the much larger Knight Ridder newspaper chain back in 2006? That was a move one industry analyst likened to “a dolphin swallowing a small whale.” The result was McClatchy saddling itself with the massive debt it has been laboring under ever since.

That being said, it’s still possible that we’ll see a headline saying, “Tribune agrees to be purchased by McClatchy.”

But what that would amount to, according to a friend who is an investment banker, would be McClatchy reorganizing without going through bankruptcy. And it wouldn’t be McClatchy money on the table; it would be somebody else’s.

There are at least two ways McClatchy could nominally buy Tribune.

:: This year, McClatchy has consolidated much of its debt with a hedge fund called Chatham Asset Management, based in Chatham, NJ. Chatham is now McClatchy’s largest shareholder, as well as its biggest creditor. Institutional Investor magazine has described Chatham as a firm that invests in companies with “distressed debt.” So, McClatchy would be little more than a stalking horse for Chatham. In addition, the New York Post reported that McClatchy had approached Apollo Global Management, a public equity firm, “to shore up its bid for Tribune Publishing.”

:: Five months ago, a Los Angeles surgeon, entrepreneur and philanthropist named Patrick Soon-Shiong bought the Los Angeles Times and the San Diego Union-Tribune from Tribune Publishing for $500 million. Soon-Shiong also happens to be the largest shareholder in Tribune (a 25-percent share), and it’s possible he could end up controlling McClatchy by striking a deal with Chatham. Soon-Shiong is believed to be interested in McClatchy largely because of its string of California papers. If Soon-Shiong emerged as top dog, he could establish a 500-mile-long newspaper juggernaut from Sacramento (McClatchy’s home base) to San Diego.

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Now let’s take a look at the other two companies that Bloomberg says have submitted bids for Tribune.

One is Donerail, an investment firm founded this year by a man named Will Wyatt, a veteran investor in media companies. Newspaper industry analyst Ken Doctor wrote on the Nieman Lab website in August that if Donerail succeeded in buying Tribune, it would take the company private “and then most likely sell the papers off to individual buyers — some of whom it already has lined up.” A Reuters story, also published in August, said that if Donerail succeeded, Tribune “would become the latest U.S. newspaper publisher to fall in the hands of a private equity firm or a hedge fund, as regional papers struggle with declining circulation amid the proliferation of online media.”

Halbreich

The other company reportedly in contention for Tribune is AIM Media, a fast-growing, private company that owns papers in at least four states — Texas, Ohio, Indiana and West Virginia. The chairman and money man behind AIM is Jeremy Halbreich, former president and general manager of The Dallas Morning News and former chairman and CEO of of Sun-Times Media. Among other things, Halbreich helped resuscitate the Chicago Sun-Times, a tabloid that had gone into bankruptcy in 2009 under previous ownership.

One thing you need to know about Tribune is it’s a certifiable disaster as a company. Since 2000, when it acquired the Times Mirror company (which owned The Los Angeles Times and Baltimore Sun, among others), it has suffered under terrible management, as well as experiencing the steep advertising and circulation losses that have left many metropolitan dailies shells of their former selves.

In my opinion, Tribune would have its best chance to survive and rebound under AIM, the only one of the three suitors led by a person (Halbreich) with a proven record of successful newspaper management.

I don’t believe McClatchy is going to end up with Tribune. It shouldn’t. It would be a farce. Like Tribune, McClatchy is an awful company. It shouldn’t be given a chance to swallow a second whale after puking up the first.