Investors in Chicago Sun-Times’ Wrapports lost $80 million – Marketing/media News

on Aug2

2 August 2017 | 10:30 am

Chicago venture capitalist Michael Ferro brought other wealthy businessmen together in 2011 to buy the Chicago Sun-Times in a gambit they thought would revolutionize the newspaper industry. Now they’re out at least $80 million, according to some of his co-investors.

Ferro, former chairman of Sun-Times parent Wrapports, jumped last year to rival Chicago Tribune’s parent, rolling some of his Wrapports co-investors into a $44 million investment in that company, which he renamed Tronc. After they sold the Sun-Times for a $1 last month, some are disillusioned about the experience.

“This was a blown opportunity,” said David Herro, an international stock fund manager at Harris Associates who invested a couple million dollars in Wrapports (he won’t say exactly how much). “I knew it was a very speculative investment, but I thought if managed right there was money to be made.”

Today, Wrapports is no more, and the Sun-Times continues to fight an uphill industry battle under new owners. It barely broke even for a time after emerging from bankruptcy in 2009, as newspapers generally lost advertiser dollars in the face of ascendant digital competitors. And the smaller Chicago paper has long had a disadvantage relative to the Tribune due to its lower circulation.

In 2011, Ferro led the $23 million Sun-Times purchase, aiming to revive the paper as a splashier New York Post-style tabloid, with expanded digital reach and a hyper-local focus on topics like real estate and high school sports. The investors funded Sun-Times losses, as Wrapports absorbed or created other businesses, including some unrelated to news.

“To me, there just wasn’t adequate enough focus,” Herro said. He estimated losses at $90 million to $100 million, though other investors who didn’t want to be cited by name said they were closer to $80 million. Wrapports got distracted by ancillary businesses, including some “duds,” Herro said.

There was Aggrego, a unit designed to graduate the Sun-Times to 21st-century digital delivery as part of a broader national network. Its Sun Times Network flamed out, and the unit shut down last month. Wrapports also included Cube, a live-streaming unit focused on high school sports, and Splash, a Chicago celebrity and pop culture magazine. Those two entities were sold to Tronc after Ferro migrated to the competitor. Wrapports at one point also included a health care startup called Higi, which manufactured kiosks for measuring consumers’ vitals at drugstores.

Ferro declined to comment, but his spokesman, Dennis Culloton, put much of the blame on the U.S. Department of Justice for thwarting Tronc’s plan to buy the Sun-Times, in the name of competition, even though Tronc would have operated it separately. “When the federal government blocked Tronc’s purchase of the Chicago Sun-Times, it denied the civic-minded Sun-Times investors the opportunity to recoup some, or eventually all, of their investment,” Culloton said in a statement. “Tronc vehemently disagrees with that decision by the government.”

BIG NAMES

He added that Facebook and Google, which tap news organizations’ content, are the entities that dominate the industry and referenced a recent effort by the News Media Alliance to negotiate collectively with those behemoths.

Other investors included GCM Grosvenor Capital Management Chairman and CEO Michael Sacks; Morningstar founder and Executive Chairman Joe Mansueto; Wirtz President and Chicago Blackhawks owner Rocky Wirtz; and Beau Wrigley, former CEO and chairman of candy company Wm. Wrigley Jr.

Madison Dearborn Partners Chairman John Canning was also a Wrapports investor and became chairman of the newspaper company’s board after Ferro exited. He declined to comment.

Some smaller Wrapports investors, like Hyde Park Herald Publisher Bruce Sagan, said they never expected much in the way of monetary gains from the Wrapports investment, but he stressed that the investors lost everything.

Sagan, who was chairman of the Sun-Times Holdings subsidiary, said management knew by last spring that it had to sell the unprofitable company to stem investor losses, or start calculating the funds needed to close the newspaper operation.

When the Justice Department stood in the way of a proposed sale to Tronc, Wrapports owners contemplating the alternative $1 offer insisted that buyers, including unions, have at least $11.2 million, or enough money to run the paper through the end of at least 2019, Sagan said.

The challenge remains to find a new economic model for newspapers, he said. “We contributed to the solution to the problem by demonstrating a number of things that don’t work so others can go on and find the things that will,” he added.

NOT FOR PROFIT

Another Wrapports investor, Mesirow Financial CEO Richard Price, said he invested, initially with the late Jim Tyree, mainly with an eye to keeping the paper alive. Price said: “This was an investment that was made not really to profit, from my vantage point, but to continue a two-newspaper town.”

Still, Herro wasn’t the only investor counting on a return. Others declined to comment on the record.

Herro gave Canning credit for doing his best to sell the Sun-Times operation to Tronc despite Justice’s opposition, which ultimately led the owners to turn to the Chicago Federation of Labor and other wealthy Chicagoans.

Chicago-based Tronc’s offer to buy the Sun-Times and its sister weekly, the Chicago Reader, as well as Aggrego, was a stock offer that at the time would have given Wrapports investors about $18 million in additional Tronc shares, Herro said. That would have added to their Tronc investment last year through Ferro’s Merrick Venture Management, which is the biggest owner by way of its 27.57 percent stake.

While there’s still the possibility that Tronc shares will pay off, Herro isn’t counting on it. Tronc stock, which closed yesterday at $12.94 a share, is down almost 7 percent this year.

“There’s almost no way to make up the loss for the remainder of the Wrapports investment, even if Tronc shares were to double from today,” Herro said.

Ferro, who was the biggest Wrapports owner before he took control of Tronc, last year donated his Wrapports stake to the California Community Foundation. But he wants his co-investors to keep believing in Tronc’s prospects, according to the statement from Culloton. “With Tronc, there is no doubt, there is more platform and scale to compete against these digital giants,” the statement said, referring to Facebook and Google.

Earlier:
• Tronc-Wrapports deal is not good for shareholders
• Look who turned down the Sun-Times
• Is a buck enough to buy the Sun-Times?



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