By Jared Chausow
By Katie Toth
By Elizabeth Flock
By Albert Samaha
By Anna Merlan
By Jon Campbell
By Jon Campbell
By Albert Samaha
When the deal is finalized in February, the new company's majority owner will be Weiss, Peck & Greer, a New York-based venture capital group owned by a group of Dutch investors.
In its story of January 5, The New York Times feigned amazement: How could any Wall Street firm rationalize spending $150 million to $160 million to transform a bohemian dinosaur into a multimedia outfit hoping to build its own brand? (This week the Times had the answer: profitability.) But the better story is about a band of minority shareholders, led by Philadelphia tycoon Arthur Howe, who put together a deal featuring Weiss, Peck as financiers and David Schneiderman as CEO. In doing so, they helped stave off a hostile takeover by New Times, the Phoenix-based chain of alternative weeklies that has been Stern's primary competition.
In late September, about the time the Stern camp announced the sale and let Howe know they would welcome his bid, Stern forced New Times (NT) owners Mike Lacey and Jim Larkin into a backdoor role, assuring the Voice staff that he had no intention of selling to them. Stern is said to detest Larkin and Lacey's abrasive style and the signature bloodbath that typically accompanies their acquisition of a new property. Instead, Stern said he preferred a buyer who would keep the chain intact (thus "preserving the legacy," in Sternspeak).
Larkin and Lacey had good incentive to bid. By assimilating the Stern chain, NT could have doubled in size, cut corporate overhead, and increased profits, preparing itself to go public. On the other hand, the move would have eliminated competition in the alternative world, in which New Times and the Voice have been the largest chains, with 11 and seven newspapers respectively. If NT had bought the Stern papers, says one wag, it would be like "sleeping with your cousin. It may seem okay, but it's not supposed to happen."
But the Voice was not going to be decimated if white knight Art Howe could help it. Howe is a former Philadelphia Inquirer reporter who won a Pulitzer in 1986. In 1989, he bought Montgomery County Papers, a Pennsylvania chain that now includes three magazines and 16 community papers. Howe is a big shot on the Main Line, a tall WASP who plays jazz guitar and is credited with increasing the circulation and revenues of the Philadelphia City Paper. Colleagues say he invests well to produce high-quality products. Now, says one, "He wants to be a player and make a big splash on the national scene."
"I believe that alternative newspapers are the future of newspaper publishing," Howe told the Voice. Not only does he believe they do quality journalism, but if properly managed, he says, an alternative chain can reduce costs, buy materials cheaper, protect itself against a downturn, expand marketing opportunities, and offer better benefits and mobility for employees.
Howe's first stab at manifest destiny came in November 1998, when he bid to buy Alternative Media Inc., a three-paper chain. He signed a letter of intent, but his financing didn't come through on time and the outfit was sold to another buyer. The failed AMI bid left some skeptical of Howe's ability to deliver. But last spring, he resumed pitching his vision, telling the money guys at Weiss, Peck that he wanted to "roll up" a number of alternative papers into one company, and that the weekly Nashville Scene was a good place to start.
Enter Albie Del Favero Jr. and Bruce Dobie. Respectively publisher and editor of the Scene, they have a vision similar to Howe's: establishing a platform from which to acquire alt-weeklies across the South. In 1996, the two bought out their partners, and within two years had sufficiently reduced their debt to begin seeking equity partners. In the spring of 1999, Del Favero recalls, "We were in heated negotiations with [Schneiderman] about selling Nashville to Stern." But after they agreed on a price, the deal fell apart, mainly because, Del Favero says, "Bruce and I weren't interested in selling 100 percent.
Through the summer, Howe and the Nashville group negotiated with Weiss, Peck, which was hot to invest in the Scene. Then in September, just about the time they had worked out the terms of the deal, Del Favero says, "lo and behold," the Voice went on the block. Howe calls the coincidence "serendipity," adding, "When we started our negotiations it was never contemplated that [the Voice] would be for sale."
Asked whether his role in the Weiss, Peck deal posed a conflict of interest, Schneiderman explains, "My job was to sell the paper. I had to be scrupulously neutral about it. I was not allowed to make a commitment." During October and November, while he was meeting with the interested parties, Schneiderman says he was constantly "surrounded by the bankers" who handled the sale. Of seven final bidders, he says, five were financial groups; each expressed an interest in signing him as part of its deal. He says he remained neutral until December 20, the day Weiss, Peck and Stern's people agreed on a price.
Meanwhile, even as Stern swore he would not sell to New Times, his bankers solicited a bid from NT and gave them the "book" with financial details on the chain, according to NT's Jim Larkin. Mike Lacey is said to have spent time in New York during the bidding period, and Schneiderman met with Lacey in L.A. One source claims that NT placed two bids, the second of which Stern entertained as late as December. Indeed, New Times was said to be so sure they had it locked up that they were working on a "hit list" of Stern employees to firea rumor that Larkin calls "bullshit."
Larkin says he was told in mid-December that "everybody had dropped out and we were the final bidders." He says he and Lacey had lined up major financing from Roger Altman's Evercore Partners, which owns six tabloids including The National Examiner, the Star, and the Weekly World News. But, he says, "the day before we were to put the bid on the table, our deal blew up," because his bankers wanted a majority stake in the combined companies.
A spokesman for Evercore could not be reached for comment. Schneiderman declined to comment on any aspect of the New Times bid, and Stern banker Robert Broadwater pointed out that anyone who received a copy of the "book" remains sworn to secrecy about the bidding process.
Cut to the Nashville group: On December 13, Del Favero and Dobie announced they had sold a stake in the Scene to Weiss, Peck. Meanwhile, they had joined Art Howe and his partners, the radio executives Mike Craven and Jim Thompson, to create a new holding company for the purpose of rolling up alt-weeklies. Their first target: ACE Magazine in Lexington, Kentucky, which the group now expects to close on by the end of January. Del Favero told a reporter that the formation of the holding company "had nothing to do with the Stern sale."
So now there were five men with minority shares in the holding company. But they needed a sixth to land the Stern chain. On December 20, as Schneiderman was getting ready to go on vacation, he got a call from one of Stern's bankers, who said, "We got a deal from Weiss, Peck. Are you in? They're not in without you." Schneiderman calls the assorted Weiss, Peck investors "good businessmen" and their proposed deal a "nice mesh" of everyone's interests. To sweeten the deal, Howe relinquished his role as CEO of the company, which was renamed Village Voice Media.
It's been billed as a happy ending, but there are still some unanswered questions: Why did Stern promise not to sell to Larkin and Lacey, and then entertain their bid? Did NT submit the highest bid? Presuming that NT would stick to its terms, some observers are wondering if Stern ever took the bid from NT seriously. As one put it, "Did he jerk them along to jack the price up?" The buyers of Village Voice Media declined to name the exact price they paid.