Delaware Court Orders Auction of Philadelphia Newspaper Company
In Re Interstate General Media Holdings, LLC, C.A. No. 9221-VCP (Del. Ch. Apr. 25, 2014).
Why This Decision Is Notable: The Delaware Court of Chancery determined that a private auction was the best method to obtain the highest possible price in connection with the dissolution of an LLC that was the subject of a deadlock between its managers, based on the circumstances of this case. In the absence of controlling precedent, this opinion explains in a businesslike and scholarly manner, characteristic of this court, why a public auction was not likely to generate the highest value in the most efficient and expeditious manner. The entity involved was the parent company of the two major newspapers in the fourth largest city in the U.S.
A prior post highlighted a prior ruling in this case that allowed a union representing employees of the newspaper to intervene, although in the end, the union was not able to find a financial backer to make a bid. (That prior post also linked to another post that made some comparisons and observations about the differences between the neighboring states of Delaware and Pennsylvania, and how those contrasts are much larger than would be suggested by the mere thirty-minute commute that separates Wilmington from Philadelphia.)
Brief Highlights of Decision: Section 18-802 of the Delaware LLC Act allows a court to dissolve an LLC when, in essence, there is a deadlock–though the statutory language is much more nuanced. In this case, however, all the parties agreed that a dissolution was necessary due to the deadlock, and the only serious issue was whether there would be a public auction or a private auction in connection with the dissolution.
The opinion details the troubled recent past of the company that owns The Philadelphia Inquirer and Daily News, and describes how ownership has changed hands many times in the last few years, with each successive wealthy optimist attempting to keep the newspapers afloat during a decline in the industry generally and an enormous reduction in the value of the company over the last ten years.
The applicable law was well established but did not provide much guidance, and there were no prior Delaware decisions that dealt with facts similar to those in this case. The court observed that:
It is settled Delaware law, however, that there is “no single blueprint” for maximizing the value of an entity through a sale. Therefore, determining the value maximizing process by which an entity should be liquidated is both a fact-intensive and fact-specific endeavor that must be tailored to the particular circumstances and realities in which the entity is operating. (footnote omitted.)
The parties could have made provision in their LLC agreement to address how exactly they wanted a dissolution or an auction to occur, but the court found that nothing in the LLC agreement was relevant to determining how the auction should take place. Throughout 42-pages, an average length for a Chancery opinion, the court explained why a private “English-style” open ascending auction, also called an open outcry auction, must be held within 30 days, with the opening minimum bid starting at $77 million in cash.