Bankruptcy brings new owners, new business models

As the newspaper industry reels from bankruptcies among some of its most powerful players, a new class of investors have quietly stepped in, seeking to capitalize on rock-bottom stock prices.

Michael Oneal of the Chicago Tribune suggests that this isn't a takeover of the industry, but it will have an impact - the scope of which remains to be determined.

The natural tension for funds like Angelo Gordon, however, is that they don't have unlimited time to wait for their investments to bear fruit. Their compensation and fee structure is generally based on raising a fund, investing it to generate 20 to 30 percent annual returns and then monetizing those returns over a period of a few years.

That tension may have led to a parting of the ways between the firm and Brad Pattelli, who gained attention this year as the architect of Angelo Gordon's extensive newspaper investments. Neither Pattelli nor the firm would comment for this story. But John Johnson Jr., who runs a company called Foamex International Inc. and has sat on a number of boards for Angelo Gordon in the past, said Pattelli was interested in business-building in the media industry, not just trading in and out of distressed companies.

"Brad wants to move up and have more of a say in how companies are managed," said Johnson. "But funds have a time limit on them."

Despite their time constraints, many believe the hedge funds will be forced to remain patient if they want to reap what they've sown in newspapers. Johnson believes the funds may not have a firm exit strategy in mind, and it will take sure signs of a recovery to grease deals and provide liquidity. For that reason, Dunning thinks any real shuffling is probably months away as financial players continue to learn what's possible and wait for exit opportunities to present themselves.