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What does the Star Tribune’s new board say about its future?

Quick thoughts on the announcement that two locals and two media pros will sit on the Strib’s post-bankruptcy board of directors.
By David Brauer

The Star Tribune wisely gave the scoop about their new leaders to themselves. Since I haven’t even had my cereal yet, I don’t yet have much on the four named directors: local businessment Michael Sweeney, the prospective board chair; William Farley, as well as ex-Wall Street Journal publisher L. Gordon Crovitz and GateHouse Media CEO Michael Reed. Two spots will be filled later.

I’ll be crowd-sourcing (in addition to reporting and Googling) all day, so anyone with insights on Sweeney and Farley especially, use the email address at right, or chime in with a comment.

A few quick observations:

Board members are important, and it’s nice that there are a couple of local guys concerned about local prestige. (Sweeney is on the Guthrie’s enormous board; Farley helps govern Abbott Northwestern and Blue Cross/Blue Shield of Minnesota.) Having two other guys with content experience is another plus.

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Still, depending on bylaws, owners are really in the drivers’ seat. Strib reporter Jennifer Bjorhus scores quite possibly the longest interview on record with Bradley Pattelli, the power behind the throne. Pattelli is managing director of Angelo Gordon, a New York-based private equity firm mixed up in the Philadelphia Inquirer’s and Chicago Tribune’s bankruptcy — and, of all things, the National Enquirer’s (via parent American Media).

Pattelli did not speak to the New York Times for a recent piece on the Inquirer, nor to Poynter Institute business analyst Rick Edmonds, who first sussed out Pattelli’s involvement.

In the Strib piece, Pattelli says combining the Strib with the Pioneer Press “makes a lot of sense” but he hasn’t spoken with PiPress owner MediaNews Group about that. Rest assured he will. Bjorhus’ choice of verb — “combining” — is interesting, and (though I may be reading too much into it) suggests a partnership rather than a takeover.

It’s generally been assumed (as dangerous as that is) that MediaNews has no cash to buy the Strib, and that Pattelli and the Strib’s other major creditors aren’t anxious to pump more dollars into a fraught operation. However, the Strib renegotiated several Teamsters contracts to combine printing operations, and some PiPress labor deals in this area expire next year. Assuming anti-trust hurdles can be surmounted, a local-operations merger is something to watch for.

In the Strib story, Pattelli says he considers Angelo’s investment in Minneapolis “long-term,” which for a private equity firm means “five to seven years.”

That’s a lot longer than I would’ve guessed; an internal search document I wrote about last week posited a two-year-time window. That document was prepared several months ago.

According to financial projections filed during reorganization, Angelo Gordon and its fellow owners (including the local Wayzata Investment Partners), expect to reap annual interest payments of $9 million to $10 million per year in 2010, 2011 and 2012.

Angelo Gordon undoubtedly bought the local paper’s debt at deeply distressed levels during the Avista era, so such interest payments could represent decent near-term profitability. The paper also projects $20 million to $25 million in positive cash flow — but we know how those projections can turn out.

The big money comes if the asset can be sold, and Pattelli’s comment probably represents how long it will take the company to prove it has a future worth snapping up. (If not, there’s always the real estate, though that market may not have hit bottom.)

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Pattelli talks up his board’s ability to “build paid content models” but it’s wise to be skeptical about their arrival at the Strib. Crovitz is a heavy hitter who helped build the Wall Street Journal’s paywall, but I regard paying for financial news as an entirely different species than paying for local news. (Pattelli’s comments seem to indicate he does, too.)

The more interesting part of Crovitz’s involvement? He’s number two on the masthead of Journalism Online, which is Court TV founder Steve Brill’s attempt to erect a global paywall for publishers. Two weeks ago, the Strib indicated it was not one of 506 papers that had signed up with the site; that may quickly change. But remember, JO hasn’t even rolled out yet, much less proven workable.

As for Reed’s GateHouse Media, it has been a major financial disaster in his three years as CEO. In June, Boston Globe columnist Steve Syre, noting the carnage at his paper and places like the Times, Tribune and McClatchy Co., wrote, “measured pound for pound, [GateHouse] rivals any of them when it comes to debt hangovers.”

Added one analyst,””It does beg the question: What were they thinking?”

Given that track record, it doesn’t seem likely GateHouse can become a Strib acquirer.