(Article updated with information on the winners of the Philadelphia newspaper auction.)

NEW YORK ( TheStreet) -- A group of hedge funds, including Angelo Gordon and Alden Global Capital, outbid Raymond Perelman at the auction for The Philadelphia Inquirer and Philadelphia Daily News. The winning bid totaled $105 million, well ahead of Perelman's offer of $85 million.

The group of creditors had agreed weeks ago to purchase the newspapers out of bankruptcy protection. However they missed the deadline to complete their planned $139 million buyout due to unresolved labor contracts with the papers' truck drivers, also known as Teamsters.

The two newspapers, run by private company Philadelphia Media, have been operating under Chapter 11 bankruptcy protection since February 2009.

Philanthropist Perelman and his son, Revlon ( REV) Chairman Ronald Perelman, bid against the creditors. Perelman has been known to express his passion for the Philadelphia papers.

"I have a strong interest in protecting the integrity of the newspaper and in the continued employment of as many employees (as possible)," 93-year-old Perelman told The Associated Press. "How can you have a city without a newspaper?"

In 2006, a group of investors led by former advertising executive Brian Tierney bought the newspapers for $515 million, but then filed for bankruptcy in February 2009. This time around Tierney was not a bidder.

-- Written by Theresa McCabe in Boston.

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