NOTE: This story has been updated to include new information from Thursday’s SEC filing.

By Julie Reynolds

The vultures have landed in Chicago.

With the board appointment of its co-founder and godfather Randall Smith, vulture hedge fund Alden Global Capital has cemented its influence over Tribune Publishing’s operations, even as Alden’s own newspapers are relentlessly laying off more of their already bare-bones staff.

In Boston, the San Francisco Bay Area and Southern California, papers in Alden’s MNG Enterprises chain (also known as Digital First Media) have laid off more employees after dramatic COVID-19-related staff reductions and furloughs in April.

More on that in a minute, but first let’s look at what’s happening between Smith and Tribune.

The already secretive Smith has been even more behind the scenes in recent years as his young protégé, Alden President Heath Freeman, became the focus of largely negative media coverage of the hedge fund’s unprecedented stripping of local newspapers’ staff and resources.

Smith is known as one of the early pioneers of vulture funds, which target distressed businesses and take them over by buying shares and getting board seats, then extract maximum resources and assets — often loading the companies with debt — until the companies are left for dead.

But now he’s come out of hiding to join Tribune’s board, whose seats have just increased from six to seven.

How Alden came to control three of those seats while owning less than a third of the companies’ shares is a stunning feat, but it’s a move Alden has perfected over the years.

Simply by raising the threat of a financial takeover, Alden got a huge boost in its ability to influence Tribune’s corporate decisions, all without having to spend a dime buying more shares.

In the case of Tribune, Alden’s reputation as a ruthless destroyer of newspapers might have actually helped fuel a bizarre trade-off — billed to the Securities and Exchange Commission as a “cooperation agreement” — in which Alden agreed to hold off on buying more shares for a year if it could add Smith to the two board seats already held by friends of Alden.

But Alden got even more out of the deal. According to a brief SEC filing this week, Tribune’s board agreed to nominate each of Alden’s three representatives at Tribune’s next annual stockholders’ meeting, to be held on or before June 15, 2021.

In exchange for all this, Alden has agreed not to buy any more shares until the meeting next spring. In addition, according to a July 2 SEC filing by Freeman, Alden agreed that its three directors would step down if the hedge fund sells off shares to the point that it owns less than 10 percent of Tribune.

The new agreement, however, also includes a few loopholes that could allow Alden to own more of Tribune anytime before next year’s annual meeting. If any other owner ends up with 30 percent or more of Tribune’s shares, Alden’s “standstill” agreement becomes void and it is free to buy more shares. The new agreement also allows Alden to buy more shares and fight back in other ways, such as a proxy battle, if someone else tries to buy the entire company.

But here’s the amazing thing: simply by raising the threat of a financial takeover, Alden got a huge boost in its ability to influence Tribune’s corporate decisions, all without having to spend a dime buying more shares.

Smith | Julie Reynolds

“Alden still would like to do The Big Rollup of the local news business, and clearly can take its time doing it, given how few competitors are out there thinking the same way,” said Ken Doctor, media analyst at Harvard’s Nieman Lab.

“With Randy Smith joining the board, Alden doesn’t have effective control, but it’s one small step away from it. It’s a move-forward, risk-reduction move,” Doctor said.

Despite denials by Heath Freeman in a March letter to Illinois Senators Tammy Duckworth and Dick Durbin, observers like Doctor say Alden has been exercising influence over Tribune’s operations ever since it managed to get board seats for two of its cronies — Dana Goldsmith Needleman and Christopher Minnetian — late last year, after Alden acquired nearly a third of Tribune’s shares.

Alden consolidated its control over Tribune within weeks, demonstrated by the speedy exit of Tribune’s CEO Tim Knight and the deposing of board chair David Dreier. Knight was replaced by Tribune executive Terry Jimenez. Tribune also hit its papers with across-the-board staff reductions in the form of buyouts.

“Tribune is suddenly acting a lot like an Alden company,” Doctor wrote in January.

So what are the possibilities for Tribune and MNG’s now-intertwined futures?

Case studies of Alden’s hostile takeover attempts

We should start by looking at Alden’s history of trying to take over boards and what happened next.

In recent years, Alden has attempted takeovers of Pier 1 Imports, Fred’s Pharmacies, Payless ShoeSource and Gannett newspapers.

Alden attempted a hostile takeover of Pier 1 in 2016, but was routed by a resistant board. Alden also failed to take over Gannett after shareholders balked, likely because of Alden’s nasty reputation for driving companies into the ground.

But where it failed with Pier 1 and Gannett, Alden succeeded with Fred’s and Payless. Both of those retail chains went into bankruptcy, and by the time Alden was finished, their stores closed, leaving more than 20,000 people out of work. I might add that Alden’s controlling shares in Fred’s were bought with $158 million that was literally — and secretly — taken from MNG newspapers.

That, in a nutshell, is Alden’s main play, and it hasn’t changed over the years.

Can we expect more of the same at Tribune?

Perhaps, but another possibility is that the Alden board members pressure or incentivize Tribune to take on debt to buy MNG. Smith and Freeman would of course profit beautifully from such a deal, whereas Tribune would be saddled with debt and a new chain of papers that are shadows of their former selves after eight years under Alden.

All that may sound strange, but Alden board members at other firms have managed to convince boards to take equally brazen steps, even if they ultimately kill their companies.

Besides the obvious Aldenesque (aka draconian) cost-cutting, the danger signs to watch for in the future are:

  • Tribune suddenly taking on debt
  • raises in executive bonuses or increased shareholder dividends

As a publicly traded company, we can assume — hope — that shenanigans like taking out loans to pay large fees to Alden’s people wouldn’t fly. But we should also be on the lookout for some kind of merger that would take Tribune private, bringing it in line with the highly secretive Alden, whose funds are largely based in the Cayman Islands.

Doctor, of the Nieman Lab, said declining ad revenues during the pandemic might explain why Alden hasn’t yet pushed for a full takeover.

“The COVID damage to newspaper property value — longer term — is substantial enough to give any owner, including Alden, pause. Its whole approach has been draining off still-substantial and slowing cash flows. COVID raises the big question of what those cash flows will look like in 2021-2023, and that explains this inch forward.”

Claims of sustainability

Freeman has insisted that his moves on Tribune are Alden’s way of “saving” the local news industry.

“We are pleased to continue our collaboration with Tribune that pursues our shared goal of ensuring the sustainability of Tribune’s local newspapers well into the future,” Alden said in a July 1 press release from Tribune.

But even as they say this, Alden keeps doing its best to destroy what it claims to save. In recent weeks, it acquired a small chain of Minnesota weeklies and immediately shut down two of them.

And Alden continues to live up to its reputation for strip-mining its MNG papers, despite evidence it shed more than 70 percent of its workforce in recent years.

This week, MNG’s Boston Herald laid off federal courts reporter Andrew Martinez, photographer Angela Rowings, and long-time Boston Celtics sportswriter Steve Bullpett, according to the NewsGuild. In addition, staff say non-union members also were laid off Wednesday – possibly as many as eight.

This comes after Herald staff shrank by more than 100 when Alden bought it in 2018. Alden also laid off at least five Herald newsroom employees in April, citing COVID-related reductions in advertising.

This week, MNG also laid off at least three news workers in the San Francisco Bay Area and more in Southern California, according to the Guild.

Meanwhile, a coalition of Guild members at 10 Tribune newspapers launched a campaign Tuesday calling on the company to “return these institutions to local ownership.”

“These cities will be better served by local ownership, including not-for-profit models, who share our vision of serving our communities with a vibrant newspaper,” said Phil Davis, a Baltimore Sun reporter and union shop steward. “We hope to build a future in which profits are reinvested back into the newsroom.”

In Baltimore, more than 6,000 people have signed onto a campaign called “Save Our Sun.” Two local foundations and a former Baltimore County executive have “stepped forward to express interest in buying the paper,” the coalition said.

Featured Art: Randall Smith, the Man Behind the Curtain | By Kirk Anderson