A union trying to buy newspapers: How would it work?

President Bush might be surprised to hear who's now promoting his "ownership society."

A labor union, the Newspaper Guild, is putting together a bid to buy 12 newspapers for sale by the McClatchy Co. -- 12 of the 32 dailies that McClatchy acquired over the weekend when it bought the Knight Ridder chain.

The dozen castaways include the St. Paul Pioneer Press, Duluth News Tribune and Grand Forks Herald -- as well as some venerable papers such as the Philadelphia Inquirer and the San Jose Mercury News.

Alongside powerful potential suitors like Gannett Co. and Denver-based MediaNews Group Inc., the union's vision to buy the papers and convert them to employee ownership sounded naive to many media analysts.

But the Guild effort got new respect when it announced that it had secured necessary financing from a major investor. "It sounds like they have a backer, and it's always all about the money," said Edward Atorino, an analyst at the New York-based brokerage firm Benchmark Capital.

It's still too early to know anything for sure. McClatchy might sell the papers singly, all together, or in bunches. Serious haggling lies ahead, with standard price formulas putting the value for all 12 at $1.5 billion to $2 billion. Other interested parties probably will step in. Editor & Publisher, a trade publication, reported Wednesday that an advertising executive and some other investors were putting together a bid "well in excess of $100 million" for the two Philadelphia papers.

The prospect of employee ownership stirs up some big conflicts. On one hand, many U.S. workers are tired of the squeeze that Wall Street's relentless pursuit of profits puts on them. On the other hand, they're wary of betting much of their money on company stock -- after Enron famously imploded and cost many employees their life's savings.

In the interest of full disclosure: The Star Tribune is owned by McClatchy, and the journalists in our newsroom are Guild members.

Guild President Linda Foley said the Knight Ridder proposal would work something like this: The union will pursue the possibility of buying all 12 newspapers, instead of the nine unionized papers it first targeted. The Guild itself would not be an owner. Instead, Yucaipa Companies, a Los Angeles equity fund, will put up the money and form a newspaper company. Employees of those papers -- union or nonunion -- could buy a stake in that company, mainly by rolling over some of their retirement savings at work through an arrangement called an employee stock ownership plan (ESOP).

Yucaipa has a "worker-friendly" reputation, having invested in other unionized businesses, Foley said. And although the two organizations haven't discussed specifics about how the newspapers would be managed, "it goes without saying" that the union contracts will remain, she said.

Some analysts wonder whether Yucaipa and the Guild can make the numbers work.

'How do they give raises?'

"Suppose the papers are required to perform at 15 percent just to cover the debt service, and they're running at 15 percent," said Larry Grimes, president of W.B. Grimes, media investment bankers based in Gaithersburg, Md. "Do they then ask [the unions] for concessions? How do they give raises?"

Foley said Yucaipa knows what to expect and remains committed.

"They know what the revenues are," she said. "They know what the returns are."

This new company would become one of about 10,000 held by employee stock plans nationwide, said J. Michael Keeling, president of the ESOP Association in Washington, D.C.

In a typical ESOP, the company or a related trust regularly transfers part of its value to its employees. They own it until they leave, at which time the company buys back their share. In a 2005 survey, companies said their average ESOP transfer amounted to 13 percent of the employee's compensation.

ESOP companies can run anywhere from 1 to 100 percent employee ownership. Their numbers have stagnated for about 15 years, Keeling said. About 1,000 new ones come online each year, but about as many exit the economy, he said.

"They tend to get bought out by other companies because they are such good companies," Keeling said.

The Omaha World-Herald is 80 percent employee-owned, spokesman Joel Long said. "It frees us from the stock market pressures that a lot of publicly held companies face," he said. "We can invest in things that are good for the enterprise. We can do what's best for us."

The largest ESOP in Minnesota is Lifetouch Inc. in Eden Prairie, a $1 billion company specializing in school and church photography. More than 11,000 employees hold 100 percent interest in the company, said Richard Hassel, its senior vice president and secretary. It's a sense of ownership that continues to build the company, he said.

Even true believers raise two cautions.

First, "worker friendly" investors like Yucaipa still answer first to the investors whose money they manage. That fiduciary responsibility demands competitive returns on investments, the Guild has advised its members.

Second, employee ownership is a good benefit but an inadequate retirement plan, said Corey Rosen, executive director of the National Center for Employee Ownership.

If their company falters, it can cost employees both their jobs and their savings, Rosen said.

"ESOP companies [must be] careful about providing more diverse retirement plans alongside their ESOPs," Rosen said.

What are your workplace issues? You can reach H.J. Cummins at workandlife @startribune.com. Please sign your e-mails; no names will appear in print without prior approval.