Originally published August 24, 2005
THE NATION'S TWO largest alternative newspaper publishers have been in intense negotiations over a merger that would create an 18-paper chain controlled to a significant extent by venture capitalists, new documents obtained by the Bay Guardian show.
The documents, which appear to be valid, include a May 27, 2005, draft of a merger agreement between Village Voice Media and New Times. They were provided by a source close to the VVM side of the negotiations.
The draft calls for the creation of a new company controlled by a nine-member board. Five of the members would come from Phoenix-based New Times and its primary venture-capital firm, the Boston-based Alta Communications.
New Times, which owns 11 newspapers including the SF Weekly, would have 62 percent of the equity in the new venture, and VVM, which owns the Village Voice and six other papers, would have 38 percent.
The documents mention a Nov. 30, 2005, date for closing the deal, but suggest that the date may have to be pushed back, in part because of federal regulatory issues.
Rumors of a possible VVM-New Times merger have been swirling for months (see "Chain Gang," 5/25/05). Neither of the principals has denied the reports, although employees of some VVM papers have attempted to dismiss them.
But the new documents are the first concrete confirmation that talks are indeed going on, and that the two parties are close enough to agreement that they've circulated draft bylaws of a new limited liability corporation that would own all of the VVM and New Times papers.
As of late May there were clearly still some issues to be resolved: The documents include a memo from VVM CEO David Schneiderman complaining that New Times wants to "renegotiate the terms of our deal" and arguing that some New Times papers, including the SF Weekly and the East Bay Express, are losing a lot of money.
"In the 2004 Calendar year, SF Weekly, East Bay Express and the Cleveland Scene racked up losses of $4 million," the memo states. SF Weekly, it says, "is locked in a brutal struggle in SF with no sign of success and the same is true in Cleveland."
The memo concludes: "In short, they have some real losers and we don't.... given these facts, I don't believe a renegotiation is warranted."
But overall, the shape of the deal appears to be fairly clear. A new Delaware-based LLC would be created, with a nine-member board. Mike Lacey and Jim Larkin, the executive editor and CEO of New Times, would each have a seat on the nine-member board, as would an Alta representative. Lacey, Larkin, and the Alta rep would then choose two more members - one of whom would be New Times chief financial officer Jed Brunst - giving New Times and its banker a 5-4 majority.
Schneiderman (who is slated, the documents show, to receive a $500,000 bonus for his work on the merger) would have a seat on the board, and the final three seats would go to Goldman, Sachs & Co., Trimaran Capital Partners, and Weiss Peck & Greer, all of whom are VVM investors.
So in the end, at least four of the board members - and possibly five - will be venture capitalists
The documents state that all but two of the board members (also called "managers") can be removed from the board for "cause" - but "the Lacey Manager or the Larkin Manager may not be removed as Managers with or without Cause, it being understood that the sole basis on which either such Manager may be removed as a Manager shall be such Manager's conviction of a felony."
The documents suggest that the new company has been set up with the idea of an eventual sale: They state that, for the first three years, the company can only be sold with the consent of six of the nine board members. But over the next two years, five board members could approve a sale, and after five years, three directors could make that decision.
"In the event the Board of Managers approves a Sale of the Company ...