Bid Would Shift Newspaper Ownership to Employees

One management team would run the corporation established for the 12 papers. (By William Thomas Cain -- Getty Images)

If all goes according to the newspaper union's plan, 12 newspapers that are for sale will eventually be owned by the workers themselves as part of a buyout effort by the Yucaipa Cos., a private equity firm.

Yucaipa will bid Tuesday on the papers that McClatchy Co. said it would sell when it acquired 32 dailies from Knight Ridder Inc. earlier this month. If Yucaipa's bid succeeds, employees will be able to invest in the papers through their retirement savings plans.

They would join an increasing number of workers in industries including airlines and steel who have taken an ownership interest in their workplaces. The number of employee stock ownership plans (ESOPs), grew from 10,670 in 1996 to 11,500 in 2005, according to the National Center for Employee Ownership. Two daily newspapers, in Omaha and Milwaukee, already are part-owned by ESOPs, which reduce federal income taxes for company owners.

"It will start off 100 percent owned by Yucaipa and then more and more by employees," Newspaper Guild-CWA President Linda Foley, said of the proposed arrangement for the Knight Ridder papers. "We would like it to be majority-owned by employees, eventually 100 percent."

The union itself will not own any part of the new group, nor is it investing money in the offer. One management team would run the corporation established for the 12 papers, tentatively called ValuePlus Media Corp. But how the individual papers will be run, if the bid is accepted, is not yet clear, according to the union.

Included in the newspapers for sale are eight papers that have contracts with the Newspaper Guild-CWA: St. Paul Pioneer Press, Duluth News Tribune, Grand Forks Herald, Philadelphia Inquirer, Philadelphia Daily News, San Jose Mercury News, Akron Beacon Journal and Monterey County Herald.

Another, smaller attempt to create a worker-owned company is brewing in Ohio. The International Brotherhood of Electrical Workers Local 1985 is in early stages of forming a partnership with a private equity firm to buy Hoover Co. from Maytag Corp. The union represents 800 workers in the company's North Canton, Ohio, facility.

The goal would be for Hoover employees either to invest in the company through their 401(k) retirement plans, or more likely, take wage or benefit cuts in exchange for an equity interest in the company, said Jim Repace, Local 1985 president.

"We know this plant can thrive," Repace said. "We feel . . . we can get this plant back on its feet again and possibly grow employment levels."

In many cases, employee-owned companies are a last resort for a faltering company. Workers, afraid they might lose their jobs, agree to invest in the company to keep it afloat. In the case of the newspapers, workers and the union are attempting to "take control of their own destiny," said Michael Keeling, president of the ESOP Association.

But employee-owned companies have challenges that are sometimes difficult to overcome. Colors, a cooperatively owned restaurant in New York, took four years to open, partly because of infighting among workers, most of whom were surviving staff from the Windows on the World restaurant at the World Trade Center.

In 1983, the Peoria Journal Star became an employee-owned company when its owner wanted to save the family-owned paper from corporate ownership. The plan succeeded a little too well: Workers began to cash out or retire a decade earlier than expected because they made so much money on the investment. The company's leaders realized that within several years, buying back the shares would "break them," said John Morton, a newspaper industry analyst. The company was sold to a corporation in 1995.

Morton said the Yucaipa deal might work because it seems better organized than past efforts. "Others haven't happened because [the unions] haven't lined up a fortune. This one has," he said.

Yucaipa is a Los Angeles-based private equity investment firm run by billionaire Ronald W. Burkle. The company has built much of its wealth around buying grocery chains, including Jurgensen's, Falley's and Alpha Beta. Burkle is a major Democratic fundraiser.

However, Morton said, "the final decision will be strictly on dollars." Details have not been released, and there are other prospective bidders, including Gannett Co., the nation's largest newspaper publisher, for at least some of the newspapers. Foley complained Friday that the guild had not been given as much financial information about the papers as had other bidders.

United Airlines mechanics and its pilots agreed to an ESOP in the early 1990s, when the company threatened to cut thousands of jobs. Workers took pay cuts and wage freezes in return for an ownership stake in the company. But then, as the company's stock plummeted, employees lost money and soured on the deal.

"You start out with a strike against you when you have to have wage concessions," Keeling said. "Lots of folks were excited at United. But there were a lot of others who were like this is a screwy deal. I don't like it. I'm getting ripped off. Unlike a typical ESOP, it was starting with more cynicism."

A similar situation occurred at Weirton Steel Corp. In the early 1980s, National Steel Corp., then Weirton's owner, wanted to divest the flailing business. Weirton employees pulled together and bought the ailing company through an ESOP. But as foreign competition increased, the company could barely stay alive. International Steel Group Inc. then bought most of Weirton's operations and reduced wages and benefits.

Harley Shaiken, labor professor at University of California at Berkeley, said the newspapers are not as distressed as some other companies where employees have attempted to take over. "The big difference between Hoover and CWA, at Hoover you've got a failing company. Here, it's not clear that papers are failing. Many are successful."