07/31/2010 12:47 pm ET | Updated May 25, 2011

Washington Post Co. Rejects Avenue Capital Group's Bid For Newsweek, Cites Ties To National Inquirer

The Washington Post Company declined to sell Newsweek magazine to Avenue Capital Group because of the hedge fund's ties to American Media, Inc., the firm which publishes the National Enquirer, The Wall Street Journal reported.

"Avenue holds a 20% equity stake in AMI and occupies one seat on the company's board," WSJ reports.

The Boca-Raton, FL-based AMI's other titles include Shape, Men's Fitness, and Star magazines. The Washington Post Company is reportedly concerned about the influence AMI might have on Newsweek content, as well as the reputation for "sensationalism" publications such as The Enquirer have garnered.

According to WSJ, "Avenue sent a letter reiterating it would own and have full editorial control over Newsweek," promising that AMI would only serve to help with "back-office functions" under a "service agreement."

But the Washington Post Company remained unconvinced, and seems poised to give other bidders serious consideration.

According to the New York Times, new frontrunners include audio equipment billionaire Sidney Harman, whose proposal is especially appealing to Post Co. since it will "keep the vast majority of Newsweek's 325 employees in their jobs, including the magazine's top management and editors."

Other top contenders, according to the Times, include Fred Drasner, a former part owner of the Washington Redskins and publisher of The Daily News of New York, and Marc Lasry, who owns a hedge fund and is a major donor to the Democratic Party.

Still, MarketWatch's Jon Friedman points out that the Washington Post might not able to afford to be so picky about where Newsweek ultimately lands. He writes:

The Post is playing a potentially dangerous game here. Yes, it believes it holds the cards and fully expects to conduct an auction to determine what company will take over Newsweek.

But what if the Post misplays its hand and the prospective suitors grow disenchanted -- and ultimately walk away in disgust, leaving the Post Co. saddled with an undesirable property?

And WWD reports that Avenue wants to jump back into the ring: "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."