Take Avenue Capital off the short list of bidders for Newsweek, at least for now. The Washington Post Co. has turned down the private equity shop’s offer, which was believed to be the highest. Why pass up the big bucks? Sources said the Washington Post turned its nose up at Avenue’s involvement with American Media Inc. The interesting part about the rejection: Newsweek’s owner knew all along about Avenue’s connection to AMI, but it’s believed there was some miscommunication during talks between Avenue and the Washington Post. Regardless, sources said the Washington Post has now made it clear it doesn’t want the Newsweek brand to be closely associated with the National Enquirer.

Not that Avenue is deterred. The sources said the firm is considering reentering the bidding process and this time around, would make a clear separation between the newsweekly and AMI’s tabloid magazine. Meanwhile, the sources said Fred Drasner has been told that he’s still in the running, but as the economics of his offer stand now, he’s in third place. It’s believed Sidney Harman and OpenGate Capital, owners of TV Guide, are also front-runners. As WWD reported, the Washington Post has placed the close-down cost for Newsweek at around $45 million, so it is seeking a bid to beat that figure. In any scenario, the company will likely end up paying the new owner millions to take the ailing magazine off its hands given there seems to be no end to the red ink ahead. Year to date, ad pages at Newsweek are down almost 11 percent to 498, according to Media Industry Newsletter.

This story first appeared in the July 30, 2010 issue of WWD. Subscribe Today.

A Newsweek spokeswoman declined to comment on Avenue’s rejected bid.

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