By Julie Reynolds
The hedge fund Alden Global Capital — reviled as the “destroyer of newspapers” — has taken a decisive step toward acquiring Tribune Publishing in the New Year and turning the publicly traded newspaper chain into a private company.
In a “letter of interest” sent to the Tribune board on Dec. 14, Alden indicated that its goal is to conclude an agreement in two to three weeks. Alden claimed it can finance the transaction without debt by using cash on hand from the MNG Enterprises newspaper chain – owner of The Denver Post, the San Jose Mercury News and other dailies – and from Alden.
In response to the news, Tribune shares rose to $14 for a brief period Thursday, closing at $13.70.
Alden is offering $14.25 per share for the rest of Tribune’s stock — 55 cents per share more than Thursday’s closing price of $13.70, though the difference was greater when Alden sent its Dec. 14 letter. Alden now owns 32 percent of the company and controls three of its seven board seats.
According to the Wall Street Journal, which broke the story late Wednesday, Tribune has a market value of roughly $470 million. Alden’s offer puts the company’s value at $520.6 million, according to Seeking Alpha.
Some experts say Alden is actually undervaluing Tribune shares, since Tribune has almost no debt.
Alden is making its move six months before expiration of a “stand-still” agreement barring it from a hostile takeover.
That agreement has a number of loopholes, and Alden never publicly disclosed it planned to execute further takeover moves in January.
But the New Year’s timeframe was discussed in internal meetings and included in a presentation at the Alden-owned MNG Enterprises newspaper chain, which was first reported here on DFMworkers.org. “Greater ownership (of Tribune) could happen as soon as Jan 1. Pushing our strategies closer together,” an internal MNG presentation slide reads.
“It looks like 2020 is going to end on a suitably terrible note for the future of local and regional news,” wrote media analyst Dan Kennedy. (Disclaimer: Kennedy quotes my reporting in his post.)
“The New York-based hedge fund Alden Global Capital, notorious for depriving its newspaper chain of staff, resources and even office space, is planning to make a play for majority control of Tribune Publishing Co., which owns such storied titles as the Chicago Tribune, The Baltimore Sun and New York’s Daily News,” Kennedy wrote.
“As for the papers now controlled or soon to be controlled by Alden Global Capital,” Kennedy concluded (borrowing a phrase from philosopher Thomas Hobbes), “the future is likely to be nasty and brutish.”
Taking Tribune private
The December letter to Tribune board members makes clear that Alden intends to acquire Tribune and not the other way around — and that it would convert the publicly traded Tribune to a privately held firm, freeing it from much federal oversight and reporting requirements.
“We believe that, as a private company, Tribune would be able to unlock significant strategic and financial value,” states the letter, signed by Alden co-founder and newest Tribune board member Randall Smith.
Both Smith and Alden are known for their high levels of secrecy, and many of Alden’s investment funds are incorporated in tax secrecy havens like the Cayman Islands.
The letter also makes clear Alden is not interested in selling its shares or being acquired. Alden is only “interested in acquiring the outstanding Shares of the Issuer that they do not already own, and are not interested in selling their Issuer stock to another party,” a related Securities and Exchange Commission filing states.
The letter says Alden does not need to borrow money to buy the shares, but could use “cash on hand” taken directly from its newspaper chain, MNG Enterprises, as well as various Alden funds.
That exact scenario worked out tragically for the now-defunct Fred’s Pharmacy chain, which Alden bought with MNG monies and then drove into bankruptcy and liquidation, shuttering the company and its hundreds of stores.
According to a Tweet from business reporter Jon Harris at the Tribune-owned Allentown (PA) Morning Call, at least one expert thought Alden’s offer of $14.25 per share was “low balling,” considering that Tribune has almost no debt and recently sold its subsidiary BestReview for $160 million.
Regarding Alden’s bid to buy Tribune for $14.25/share, analyst Douglas Arthur just published a report that says the hedge fund is low-balling Tribune with its offer. “Our initial reaction is that this offer is significantly too low,” wrote Arthur, of Huber Research Partners
— Jon Harris (@ByJonHarris) December 31, 2020
Saving the Sun?
Smith’s letter to the Tribune board also mentions a Dec. 11 “brief meeting” with shareholder and former Maryland state senator Stewart Bainum, Jr. “to hear, on a high level, (Bainum’s) interest in respect of certain assets of Tribune.”
While the letter didn’t spell out which assets Bainum is interested in, journalists at the Tribune-owned Baltimore Sun have launched a high-profile campaign seeking buyers who will shift control to a local nonprofit foundation.
Bainum is currently chair of Choice Hotels International.
“A reasonable guess is that his target is The Baltimore Sun Media Group, which includes several suburban papers and the Capital Gazette in Annapolis,” reports Poynter Institute’s Rick Edmonds.
One curious amendment to the letter filed this week with the SEC is a discussion of the 10,093 shares Smith received from Tribune in November. While the $120,000-plus transaction was considered compensation for Smith serving on the board, this week’s filing pointedly explains that Smith is not personally benefitting from the stock — the shares instead belong to Alden’s subsidiary, Alden Global Opportunities Master Fund, L.P., located in the Cayman Islands.
DFMworkers.org reported the share transfer to Smith, noting it came as Tribune and MNG papers were shuttering offices, defaulting on lease payments and cutting staff through furloughs, layoffs and buyouts. Just this week, Tribune announced a new round of buyouts in its Chicago Tribune newsroom, presumably under pressure from Alden to sweeten profit margins.
The letter of interest from Alden is non-binding, and it said any sale will require two-thirds of Tribune’s non-Alden shareholders to approve. It also needs approval from a specially appointed committee of “independent members of the Board.”
Nonetheless, Alden notes, its goal is to enter into “a binding material definitive agreement within two to three weeks.”