Judge says no rush on Sun-Times union concessions

WILMINGTON, Del. - The Chicago businessman who has offered to buy the Sun-Times Media Group can't demand quick concessions from the company's labor unions in order to close the sale, a Delaware bankruptcy judge ruled Thursday.

STMG Holdings LLC, led by banker Jim Tyree, has offered to pay $5 million in cash for the Sun-Times assets and to assume about $22 million in liabilities in an effort to continue operating the newspaper company as a going concern.

But Tyree wants several concessions from the Sun-Times' 18 unions, and has threatened to walk away from the asset purchase agreement, or APA, if the company doesn't deliver revised labor contracts by Sept. 29.

At a hearing Thursday, Judge Christopher Sontchi rejected the deadline, noting that the sale doesn't have to close until early December, and that Tyree would be liable if he walks away two or three months before closing.

"Maybe it is just posturing, maybe just a misunderstanding," Sontchi said of Tyree's threat to walk away. "But I would find that actions like that by the buyer would be a breach of the covenant of good faith and fair dealing in connection with this contract."

The judge also rejected an agreement with Tyree's group that called for any competing bidder to promise to operate Sun-Times Media as a going concern for at least six months.

"It is unlikely, but quite possible, that there will be a liquidation bid that might exceed the value of a going concern bid," said Sontchi.

After Sontchi offered his observations, Sun-Times attorney David Agay asked for a recess, during which STMG attorney Randall Klein made a phone call.

"I have confirmed with my client that they have no right to walk away from this agreement if the union condition is not satisfied by Sept. 29," Klein told the judge after the hearing resumed.

Klein noted that if Tyree were to walk away from the deal, he potentially stood to lose about $1 million in breakup fees and expense reimbursements.

"That is not where Mr. Tyree wants to be at the end of this process," he said.

Klein noted that STMG is not directly involved with the union negotiations and said that Sept. 29 was "an internal date that the sellers were targeting."

That contradicted testimony from Sun-Times general counsel James McDonough, who said Tyree wanted the union concessions by the end of the month.

Tyree wants 15 percent pay concessions that the unions approved on a temporary basis to be extended for three years. He also wants members of the Chicago Newspaper Guild to agree to flexible work rules.

At issue are 18 separate union contracts, although two of the bargaining units are connected to production facilities that have closed or are being shutdown. Of the 16 others, five involve the news guild, which rejected the concessions last week.

Prior to the hearing, none of the unions had agreed to the new concessions, but McDonough said he expects all of the non-guild trade unions to sign off by early next week.

"We hope the guild will follow suit," he said.

Asked what will happen if the deal with Tyree falls through because the union concessions or other conditions are not met, McDonough said the company would reconsider all the alternatives previously looked at, "up to and including liquidation."

"There are no other offers on the table, there are no other bidders we could go back to, so we'd have to start all over," he said.

The Sun-Times group filed for Chapter 11 protection in March after struggling with falling advertising revenue, a factor also cited in roughly a dozen other media company bankruptcies.

The Internal Revenue Service claims that the Sun-Times owes as much as $608 million in back taxes and penalties related to the business practices of former owner Conrad Black, when the company was called Hollinger International. Black was convicted of fraud for siphoning millions of dollars from the company and is serving a prison sentence.