(Updated) State Attorney General Richard Blumenthal plans to intervene in the Journal Register Co.‘s Chapter 11 bankruptcy case to try to block bonuses planned for executives in return for shutting down newspapers and laying off more employees.
Blumenthal (pictured) announced the move Monday in reaction to a story in the New Haven Independent focusing on a motion attached to a petition the company filed in federal bankruptcy court in New York Saturday seeking protection from creditors.
The Yardley, Pennsylvania-based company owns the New Haven Register and 19 other daily newspapers and some 180 weeklies.
As part of its proposed bankruptcy reorganization plan, the company wants to give 31 “key” executives $1.7 million in bonuses — some termed “shutdown bonuses” — if they meet certain goals.
Those goals mainly consist of shutting down newspapers and firing employees, the main strategy of a business plan it began implementing in late 2008 after consultation with creditors.
Company officials said in their court filing that the bonuses will save the company money because it would cost more to hire outside consultants to handle the complicated task of dismantling staffs and newspapers.
The bonuses came under fire Monday from both Blumenthal and State Senate Majority Leader Martin Looney.
“That’s really outrageous,” said Looney, who represents New Haven. “They’re basically going to pay people to salvage the company. They’re going to pay a premium for layoffs.”
Blumenthal said his office plans to file an objection to the proposed bankruptcy plan with the federal court within the next week to ten days. He said the objection will pertain specifically to the executive bonus plan.
“These bonuses seem unnecessary and excessive given the apparent financial failure of the company,” said Blumenthal. “It certainly has the appearance of rewarding failure. They’re closing newspapers and laying off employees.”
“It fits the general concern that many people have with bonuses — in this case ‘shutdown bonuses’ — that seem very inappropriate. We’re going to review exactly who receives what bonuses in what amounts.”
The Connecticut politician who has made the most headlines lately attacking executive bonuses is U.S. Sen Chris Dodd. His office at first said Sunday that he might have a comment on the proposed Journal Register “shutdown” bonuses. But by late Monday it had yet to produce one.
Estimates of the Journal Register Co.‘s debt range from $500 million to $1 billion. It reported under $500 million in assets.
Read the main court filing here.
But first a judge must approve the plan. Which gives Blumenthal an opportunity to register Connecticut’s objections.
Register Publisher Edward Condra could not be reached for comment. Nor could a spokesperson at the company’s Pennsylvania headquarters.
A Trend
Monday yet another media company, the owner of Philadelphia’s two main daily newspapers, also filed for Chapter 11 bankruptcy protection.
Journal Register is the second corporate parent of a New Haven print newspaper to file for bankruptcy protection in under three months. Chicago-based Tribune Co, which owns the New Haven Advocate and the Hartford Courant, filed under Chapter 11 on Dec. 8.
Like most other print newspaper companies, both Tribune and Journal Register have watched revenues wither under the dual glare of a recession and the flight of news readership and advertising to the Internet.
The two companies have suffered for an additional reason: a decision by corporate execs to plunge deep into debt to finance acquisition of newspapers across the country. Their strategy — to continually slash costs by shrinking newsrooms, among other areas — increased profits for a while, but eventually gave readers less reason to keep buying.
A new round of cuts is expected to hit the Courant and Advocate newsrooms over the next week.
Journal Register suffered in particular because of a decision to purchase weekly newspapers outside Detroit — just in time for the meltdown of the Motown-centered U.S. auto industry.
Despite those bad calls, Journal Register now wants a bankruptcy judge to OK paying bonuses to 31 execs to continue that strategy, in order to salvage at least some of creditors’ money.
“Shutdown” Bonuses
The company proposes to do that by cutting even more newspapers and employees. Already in the past few months Journal Register has closed or sold dailies and shuttered dozens of weeklies in Michigan, Pennsylvania, New York, and Connecticut, including a group of town weeklies in Greater New Haven.
A motion included in the Saturday court filing asks court approval for an “incentive pay” plan for 31 “officers and key employees.” The plan would provide up to $1.7 million in new bonuses in coming months on top of $486,000 already paid out in the past few months to reward execs for layoffs and paper-closings.
The pay would be based on carrying out in stages a business plan approved last October between creditors and company brass.
These bonuses, including a “shutdown bonus,” are based on carrying out two major objectives.
One objective involves “significant headcount reductions.” In other words, firing people. One of those layoff measures “remains unperformed,” according to the motion.
Click here to read the motion.
The “key” employees received $486,000 in bonuses for carrying out previous layoffs by Dec. 31. The next wave is scheduled to take place by March 31, according to the motion, at which point the key employees would pick up an additional $486,000 in rewards.
Objective number two: “Restructuring.”
Execs will pick up another $486,000 in bonuses (or $15,700 per “key employee”) “if certain publications slated for elimination in the Business Plan are shut down in a timely manner,” according to the motion.
“The Business Plan contemplates the elimination of many non-daily publications and several daily newspapers, with the goal of making the Company a leaner, more profitable enterprise,” the motion reads.
Those publications are scheduled to be closed by Feb. 28, according to the motion. It doesn’t name them.
A third $486,000 batch of bonuses awaits the execs if they are found to have met a goal set for improving EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) for the fourth quarter of 2008.
A final $253,000 more in bonuses are to go to 10 top employees upon “consummation” of the reorganization plan.
It’s Hard Work
Why reward execs who destroyed a company for sweeping the final ashes into the furnace?
The motion argues that the execs deserve the bonuses because they “have been called upon to take on significant responsibilities in addition to their normal day-to-day functions” of their jobs. Furthermore, these tasks “are critical to the achievement of” some salvaging of creditors’ losses.
Hiring “outside professionals” to perform the same work would cost more money, the motion argues.
Observers expect the Journal Register to keep the New Haven Register in business, since it reportedly turns a profit. The company planned to close two other Connecticut dailies this year, in New Britain and Bristol, unless a buyer emerged; one did.
The Register has endured waves of layoffs on and off since the early 1990s. Last March the paper laid off its last Capitol reporter, Greg Hladky, and closed a bureau that had served several of its dailies. In November it laid off 20 employees and closed its entertainment weekly, Play. In December it closed weeklies from Clinton to West Haven to Shelton to Stratford.