Obama’s Justice Department and the Rocky
There are a few theories on why E.W. Scripps is racing to dump the Rocky, putting it up for sale for just one month. One is, Scripps can afford to lose a bit of money for a month to see of a buyer comes along and offers a lot of money, even if the Rocky is sold at a bargain price.
Another theory is that Scripps’ lawyers advised the company to put the newspaper up for sale for a month to show the Justice Department that it tried to sell the newspaper. (See my rejected Rocky column below.)
Another theory was that Scripps wanted to get rid of the Rocky before the Obama Administration took office, because Bush’s Justice Department would be less likely to intervene to save the Rocky than Obama’s new team at Justice. In my rejected Rocky column below, I quoted two experts who agreed that Obama’s Justice Department would be more likely to intervene that Bush’s.
That was probably wrong, because the Rocky is still with us and the new Administration has taken power. You could still make the argument that the new Administration is less likely to intervene soon than it would be six months from now, after it’s had time to get its act together. So there still could be an incentive for Scripps to act quickly, before Obama’s Justice Department is fully organized.
In any case, and this is the more important point, JOA legal expert Stephen Barnett says the Rocky does not need the approval of the Justice Department to shut the Rocky, if it simply shutters the newspaper and walks away from its investment in the Denver Newspaper Agency, the company that publishes the Denver Post and the Rocky and is joinly owned by Scripps and Dean Singleton’s MediaNews Group.
This is unlikely, though, given the value of the Denver Newspaper Agency.
As former Post and Rocky business editor Don Knox told Westword, the jointly-owned company has $300 million in revenue. Yes, it’s got lots of debt, too, but Scripps would have to be reeeeely desparate to just leave the DNA to co-owner MediaNews and skip town. And Scripps isn’t so desparate yet, you’d think.
So this means that the most likely scenario, as reported by the Denver Post, is for MediaNews and Scripps to make a deal to close the Rocky–to “negotiate an exit strategy,” as the Post put it. And, if you believe Barnett, this would require approval of the Justice Department BEFORE the Rocky is closed.
And that’s when Justice could intervene to require, for example, a longer sales period, as explained in my rejected Rocky column below.
A contract to close the Rocky between Scripps and MediaNews could involve many unknown elements, but one option would be for Scripps to retain its position as 50-50 owner of the DNA. Or it could sell its share to Singleton, leaving Denver to MediaNews and the Post. The difficulty with the latter option would be determine what kind of payment the Rocky would get from Singleton for its share of the DNA.
In the past, when a newspaper has jumped out of a JOA, it has been given a share of future profit. (Read a bit about this here, for example.) But in the current economic environment, especially given Scripps professed views on the dismal future of big-city newspapers, you wouldn’t think Scripps would want any part of such an arrangment, given the (at least) short-term losses that the DNA is expecting.
So, perhaps the DNA would declare bankruptcy and, at the same time, close the Rocky. Singleton has opposed a bankruptcy delcaration, but maybe he’d go along with it to shed the Rocky.
Knox told Westword he thought bankruptcy made sense, though he suggested it as a way to save the Rocky, not kill it: “Just do a bankruptcy for the DNA. Change the equity and extend the lease payments. After all, it’s got $300 million in revenue. That doesn’t sound like a broken company to me. That sounds like a company with challenges …- but in 2008, there are a lot of companies with challenges.”
The bottom line is that the most likely scenarios to close the Rocky involve some sort of agreement between Scripps and Media News to do so. Such an agreement would most likely have to be approved by Obama’s Justice Department.