'Clarifying' the news about MediaNews

MediaNews execs Dean Singleton and Jody Ludovich sent out a memo to employees to address concerns about S&P's recent downgrading of the company's debt rating, and analyst predictions that the company risks falling into default.

The execs say recent turmoil in the financial industry has pressured ratings agencies to become more cautious when evaluating debt - extreme even. However, they acknowledge there are "economic headwinds" ahead.

The memo skirts the issue of whether more newsroom cuts will be made, but it certainly leaves the door wide open for additional layoffs. The execs also talk about doing more consolidation and an upcoming "transaction" with Hearst, although they offer no details. The memo appears to dismiss any notion of MediaNews gobbling up more newspapers anytime soon.

Here's the memo:

TO: MediaNews Group Employees
FROM: Jody Lodovic/Dean Singleton
RE: RECENT PRESS

Many of you have probably heard or read the recent negative press surrounding the newspaper industry, including MediaNews Group. The focus on MediaNews Group was prompted by a recent downgrade by Standard & Poors. Given the speculation and innuendo contained in recent stories, we wanted to provide as much clarity to each of you as possible.

Before getting into specifics, we want to put the recent S&P downgrade into context. MediaNews is not alone, nor is the newspaper industry unique. Unprecedented turmoil in the financial markets and the economic challenges faced by many industries has resulted in a great deal of dislocation and irrational behavior in the market place. Rating agencies such as S&P and Moody's have been criticized and threatened for not reacting quick enough to update their ratings. It is our opinion (shared by others) that the rating agencies have now gone to an extreme and are being overly conservative with their ratings. As a result, every newspaper company, including MediaNews Group, has been downgraded multiple times during the past year. While we can debate whether these downgrades were warranted, we acknowledge that the economic headwinds we (and many others) face pose a real challenge. Let us assure you, MediaNews Group is up for the challenge!

We also want to address the speculation regarding the recent leadership changes at Hearst. While it is not appropriate for us to address the specific reasons for the change, we can tell you that Hearst remains committed to and supportive of MediaNews Group. In fact, we expect to announce another transaction with Hearst shortly which will better position us to weather the current economic storm. We and Hearst have identified several areas where we can work together for our collective benefit, as well as for the potential benefit of the industry. Some of these strategies, such as our joint Kaango and PSA investment and formation of the Yahoo! consortium, are already underway. We look forward to expanding our efforts with Hearst in the future. Aside from the matters addressed above, we are sure other questions come to mind about the future of newspapers and MediaNews Group. Let us address a few that come to mind.

Is MediaNews Group meeting financial commitments under the terms of its various debt agreements?

Yes, MediaNews is in compliance with the terms of its bank agreements and continues to take steps to reduce its total debt and expect to remain in compliance in the future. As has been the case in the past, MediaNews may from time to time seek amendments of its debt agreements as necessary to provide maximum flexibility.

Is MediaNews concerned about the level of its debt?

Certainly, given the economic environment we are in, we would rather have less debt. But, this is not our first rodeo. In the last newspaper recession (in the early nineties), we operated with higher relative levels of debt. We came out well positioned and led the industry in growth for much of the next decade. With our collective efforts, we will lead the charge again!

Is MediaNews looking to buy more newspapers in the near term?

While Mediapews believes the future of newspapers is bright, MediaNews is not currently looking to acquire more newspapers. We believe our resources should be more internally focused on reinventing our current newspaper model to support future growth plans. That said, we believe that consolidation within the industry is inevitable and will help facilitate the change necessary for newspapers to thrive well into the future. MediaNews expects to be a leader in that consolidation effort.

MediaNews has always been focused on cutting costs. Is there a different strategy for the future?

Unfortunately, all newspapers are faced with making significant cost cuts. Declining revenue and higher newsprint prices, as well as ever increasing benefit costs, simply leave no choice. The recent necessary downsizing at some of our newspapers was a difficult decision, from both a personal and professional perspective, and we will certainly miss our cohorts. Each played an important role in the company, and there departure, through no fault of their own, leaves a whole that the rest of our employees will have to fjnd a way to fill.

MediaNews doesn't believe cost cutting is a long term strategy. However, we recognize that there is a structural change in our business, and we must align our cost structure accordingly. That is precisely why we engaged Bain last Fall - to provide us a roadmap to build the newspaper company of the future by leveraging the vast resources of the entire company. Individual newspapers can only cut costs so far without impacting the perceived value to advertisers arid readers. Accordingly, we must work together (as well as with other companies) to find new and creative ways to streamline operations in ways that are transparent to both readers and advertisers. In fact, we believe it is possible to improve our products and services and operate more efficiently at the same time.

Unfortunately, gone are the days where we can operate as a collection of standalone newspapers. We must leverage our collective resources and position ourselves to reinvest in our business going forward in order to provide the tools and resources to ensure success in the future. And, we are starting to do just that, with significant investments in the sales, marketing and research arenas.

We hope that this addresses many of your questions and conveys MediaNews Group's commitment to taking the necessary steps to ensure our future success. No one said change was easy, and the current economic environment makes it all the, more challenging. But, the rewards for successfully navigating through this period of transformation will be great.

We truly believe in the future of newspapers, the services they perform and the value they provide. You, our employees, are our most valuable asset. And, if we all work together, MediaNews will lead the industry into the future! We recognize and appreciate your efforts and dedication during this challenging time. Remember-together we can!