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Originally published Monday, April 26, 2010 at 7:10 AM

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Yucaipa out, Perelmans added to Pa. newspaper bid

Business moguls Raymond and Ronald Perelman have pledged last-minute cash to join local investors trying to keep Philadelphia's two largest newspapers away from creditors at a bankruptcy auction scheduled for Tuesday.

Associated Press Writer

PHILADELPHIA —

Business moguls Raymond and Ronald Perelman have pledged last-minute cash to join local investors trying to keep Philadelphia's two largest newspapers away from creditors at a bankruptcy auction scheduled for Tuesday.

The father and son replaced California billionaire Ron Burkle in shoring up the local bid for the company that owns The Philadelphia Inquirer and Philadelphia Daily News.

Burkle, a major donor to Democratic causes, had agreed at the urging of Pennsylvania Gov. Ed Rendell last week to aid the local bid rather than mount his own bid for the newspapers. But he will now step aside.

The local group now includes the Perelmans, chemical company heir David Haas and several current investors, including home builder Bruce Toll. They will compete with the creditors group and a third bidder, the Canadian investment firm Stern Partners, at the closed-door auction for Philadelphia Newspapers.

Terms of the three bids were not disclosed.

However, Publisher Brian Tierney said the creditors' bid calls for firing all of the company's 4,500 employees, with a pledge only to rehire at least 51 percent on new terms.

"So, up to 2,250 people could lose their jobs, and even those that retain their jobs could have very different (salaries and benefits)," Tierney said after a final pre-auction bankruptcy hearing Monday. "It's shocking."

The other two bidders included plans to try to negotiate contracts with the roughly 4,000 unionized workers, the company said. However, Chief U.S. Bankruptcy Judge Stephen Raslavich noted that none of the bids come with any employment guarantees.

Toll, Tierney and other investors bought Philadelphia Newspapers in 2006 for $515 million, only to see its value slide amid the industrywide falloff in revenue. Tierney himself has had to lay off staff, and the company now has about 500 fewer employees, he said Monday.

The company's current value could be less than $100 million, company executives and creditors have said.

The owners filed for bankruptcy last year, and devised the auction as part of its reorganization plan. A hearing is set for May 25 for the judge to approve the winning bid as the "highest and best" for the company. That could prove contentious, given potential arguments about whether the winner is assuming pension and other liabilities.

The Perelmans' emergence on Monday - a day before the auction - is just the latest twist in the bitterly fought, 14-month bankruptcy proceedings. Raymond Perelman, who is in his early 90s, is a major philanthropist in the Philadelphia area. A recent $90 million annex to the Philadelphia Museum of Art bears his name and that of his wife. Ronald Perelman is a New York financier and Revlon Cosmetics chairman whose expensive divorces have made headlines.

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"The Perelmans have resources comparable to the lenders. There's a lot of money already behind the former stalking-horse bid. The Perelmans make it that much stronger," newspaper lawyer Larry McMichael said.

Toll had partnered with other local investors to form a group that months ago entered a "stalking horse" bid - an opening bid backed by the company - of about $30 million cash, plus the $30 million newspaper building and a $17 million line of credit.

However, the company announced last week that the stalking horse bid was out.

The secured creditors nonetheless vowed to win the round-robin style auction and sharply criticized company officials for disclosing details of the sealed bids in court Monday. The judge agreed that testimony seemed designed to inflame hostility toward the lenders.

Dozens of Teamsters who work for the company, many as drivers, attended the hearing.

"Management of this company has manipulated the process from the beginning," said creditors lawyer Fred Hodara. "It doesn't matter because their bids will fail ... and there will be one bid left standing."

The newspaper company deemed as "qualified" all three bids submitted, although a court-appointed monitor and an unsecured creditors group complained Monday that they were not consulted, as required, about that process.

"If one bidder was improperly qualified, and the result of that is (they can) bid any amount at no risk, then that affects the quality of the auction," said lawyer Gary Schildhorn, who represents unsecured creditors.

The unsecured creditors are expected to lose nearly all of their approximately $100 million investment. Secured creditors hope to win the company to try to recoup some of their $318 million investment.

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