By Julie Reynolds
Alden Global Capital, the hedge fund behind the wholesale pillaging of one of America’s largest newspaper chains, specializes in troubled industries.
At times, investing in businesses on the brink has been a losing bet for Alden, such as its recent excursion into the Fred’s Pharmacy chain that lost more than $100 million in value this year.
Hometown newspapers across the country are paying the price for such risky gambles. Staff at Alden-owned Digital First Media papers has been cut by 36 percent in the past two years, leaving many important issues — and even entire communities — without coverage. These draconian cuts, along with the mass sell-off of newspaper buildings and land, have helped Alden’s founder Randall Smith lead a lavish life in Palm Beach and the Hamptons while buying up more than $50 million in Florida mansions.
Now Alden’s investments include a foray into a bankrupt coal company rife with pollution scandals, alleged stockholder rip-offs, and worker pension and health plan controversies.
Once a titan of the industry, St. Louis-based Peabody Energy last year filed for Chapter 11 bankruptcy and has only recently emerged.
The Washington Post has called Peabody “the largest and most storied U.S. coal company.”
Since then, it’s been dubbed a “hedge fund hotel” by the financial press, because 80 percent of its stock is now held by a small number of “vulture” investment firms.
What followed Peabody’s bankruptcy “was not typical,” writes columnist Burt Rothberg for the investment website Seeking Alpha. “The bankruptcy settlement reserved much of the proceeds to certain of the stakeholders, notably a core group of creditors and Peabody management. Stockholders were wiped out and retail unsecured bondholders received much less than they expected… My sense is that many of the stockholders were long-time holders and were financially unsophisticated. Really awful, if you think about it.”
In a 2009 Newsweek ranking of 500 companies for environmental compliance, Peabody Energy came in last.
Peabody’s disregard for the little folks shouldn’t have come as a surprise. In 2013, the company tried to leave some 20,000 workers without pensions and retiree health care, but that plot was averted in an undisclosed settlement that Peabody apparently undertook in a failed attempt to avert bankruptcy.
When Peabody ultimately did file for bankruptcy, its lawyers again hoped to axe the workers’ pension plan, worth $643 million, according to the United Mine Workers of America. In a last-minute deal, the workers’ union settled for $75 million.
Court filings show that under another last-minute deal, this time with the Justice Department, Peabody was held responsible for environmental claims by the Environmental Protection Agency, seven Native American tribes and others. The original claims totaled in the billions, but under the settlement Peabody agreed to set up a $43 million trust for settlements with the tribes and others. The company’s environmental record has long been abysmal. In a 2009 Newsweek ranking of 500 companies for “green” compliance, Peabody came in last.
When a new, streamlined Peabody finally emerged from these dust-ups with the courts, many of its former top executives remained. Now they are poised to collect tens of millions in stock bonuses as part of the company’s bankruptcy exit plan.
SEC filings from late September show that Alden increased its shares in Peabody by nearly $51 million earlier this year, raising it from 2 percent of the stock holdings Alden owns to more than 30 percent. After Fred’s, Peabody is Alden’s largest stock investment.
“This is the same company that left my region in economic shambles.” — college student Matthew Galik
Bankrupt businesses are attractive to hedge funds because in the bankruptcy process they can lower their pension and other obligations, while their bargain-basement stock usually has nowhere to go but up.
Peabody has not become the loss for Alden that Fred’s was — in fact, its share value has steadily risen since July, despite revenue projections of $1.48 billion that were off by $10 million in the third quarter.
But Alden’s investment in big coal comes with other costs.
In a guest column for the St. Louis Dispatch, college freshman Matthew Galik wrote last year about Peabody’s impact on his coal-mining family and community.
“There is coal in my blood. It flows through my people, through our history, and through the land…” Galik wrote. “Drive through Southern Illinois and you will see what coal has done, and what it is doing. You will see Sesser, Waltonville, Tamaroa, Zeigler, Galatia, Coello, once-thriving mining communities now turned ghost towns…
“Companies like Peabody have turned their backs on my region, leaving the communities of my family’s history as little more than road signs on the highway, signs with population numbers that decrease with each census.
“This is the same company that left my region in economic shambles and is now threatening to take medical coverage and pension money from my grandfather’s widow, my lovely grandma.”
Alden and nine other hedge funds are now at the helm of Peabody. If Alden’s atrocious stewardship of community newspapers has been any example, the coal mining families of Illinois have just gone from the frying pan into the fire.