The rise (and myth) of Alden Global
Read Part 1 here.
By Julie Reynolds
While Randall Smith and his close relatives were investing in Western U.S. real estate, hotels and oil fields, Smith was also busy expanding his offshore empire.
His new firm was called Smith Management LLC, though that company (while still active today according to New York corporation filings) has taken a back seat to Smith’s worldwide vulture fund, Alden Global Capital, formed in 2007.
Business websites often mention that Alden Global Capital has offices in New York, London, Dubai and Mumbai — an impressive roster of locations implying a global sphere of influence.
But our fact check found otherwise. Alden’s London and Mumbai offices have closed, according to public records there, and we could find no record of a Dubai office at all. The only functioning offices we could find are on two different floors of Manhattan’s Lipstick Building, famed for once being the base of disgraced investor Bernie Madoff.
This doesn’t mean that Smith’s holdings have suddenly become all-American. Like other hedge funds now coming under international criticism, Alden has invested heavily in Greece and Argentina, areas hard hit by economic crises, and a number of its funds are based in the Cayman Islands.
But those projects have received scant attention. The investment that has forced Smith into the public limelight — reluctantly, without a doubt — has been his dive into America’s newspapers.
While the rest of the country was still hurting from the Great Recession, 2009 was a boom year for Smith.
The gutting of the news
Starting in 2009, Smith began quietly buying up newspaper chains around the U.S. First the New York Times noticed, then a media business analyst at Florida’s Poynter Institute.
“Randall Smith may feel fresh pressure to get just a little transparent and go public with a charm offensive as his company becomes a bigger ownership force,” wrote Poynter’s Rick Edmonds. That prediction was not to come true. Smith remained reclusive as ever as his strategy for buying and gutting newspapers played out.
While the rest of the country was still hurting from the Great Recession, 2009 was a boom year for Smith. The Alden fund that held his media investments reportedly increased 187 percent in value, and Smith’s appetite for the news business became near-voracious.
He bought a large chunk of Freedom Communications, which owned the Orange County Register. He bought MediaNews Group, which owned the Denver Post, the San Jose Mercury News, L.A. Daily News, and scores of other dailies and weeklies. He also bought stakes in the Philadelphia Media Network, Gannett Corp, A.H. Belo, McClatchy, Media General, Journal Communications and Canada’s Postmedia.
He invested in the bankrupt Journal Register chain, which had papers in the Philadelphia, Detroit and Cleveland metro areas, as well as Connecticut and parts of New York.
But by 2011, the Alden Global Distressed Opportunities Fund, which held much of the Journal Register investment, lost 22 percent of its value. It turned into a very bad year for Smith, who seemed to believe that buying up the news would turn his fortune around.
“The grandfather of vulture investing is producing results of late that are for the birds,” the New York Post observed.
Court documents show that in 2011, Alden lent Journal Register roughly $145 million to pay off its bank loans. But by September 2012, the company owed $152 million to Alden, plus another $10 million in other debts, the records show.
And so, under Alden’s stewardship, the indebted newspaper company declared bankruptcy a second time. For Alden, this was good news — it was a move that enabled Alden to buy all the chain’s assets outright at fire sale rates.
America’s massive sell-off of historic downtown
news buildings was about to begin.
Journal Register vice president of operations William Higginson told the court in a written statement that “an affiliate of Alden” was selected to buy the chain’s real estate properties, although Higginson suggested an auction that could net higher prices would be in the best interests of the company’s creditors. Never mind that Alden was the company’s biggest creditor.
Alden’s affiliate ultimately won the day with an arranged “stalking horse bid” and acquired the chain’s newspaper buildings, land and remaining presses.
America’s massive sell-off of historic downtown news buildings was about to begin.
“Profit-margin greed is the real threat”
Meanwhile, the two chains, MediaNews and Journal Register, merged and together became known as Digital First Media. Smith sold most of his other news investments.
The Daily News reported that Alden’s total assets dipped from a high of $3.5 billion in 2011 to around $2.1 billion in 2012, a number it’s hovered around ever since.
But his prospects began to look up. Digital First Media papers, through extensive budget cuts and the sell-off of their real estate, were bringing in excellent returns.
By 2016, the company gobbled up — with full ownership this time — the now-bankrupt Freedom Communication’s Orange County Register and Riverside Press Enterprise. Its real estate affiliate quickly snatched up the buildings and land, readying them for sale.
With Digital First, Smith now had control of the country’s second-largest newspaper chain in terms of circulation.
But unlike the powerful newspaper magnates of the past, Smith has taken no obvious interest in the papers’ editorial direction. In fact, judging by the nature of his draconian newsroom cuts, it appears that Smith’s philosophy is the less news, the better. After all, reporters cost money.
Under Smith’s watch, DFM papers have lost staff at twice the national rate. The NewsGuild, which represents workers at 12 DFM papers, reports that in less than two years Alden has slashed staff at those papers by 36 percent — from 975 union employees to fewer than 620.
In Colorado, Matt Sebastian, city editor of the DFM-owned Boulder Daily Camera, responded in September to a radio show’s accusation that Alden was influencing its coverage and had a “political agenda.”
Sebastian responded on Twitter with a string of tweets that ended with “Profit-margin greed, not tinfoil theories about right-wing agendas handed down from on high, is (the) real threat of hedge-fund journalism.”
Past investors in Alden have included the Knight Foundation, pension funds for employees of Coca-Cola, Citigroup and the California public employees’ retirement fund.
Mixing business and pleasure
While his newspapers wither under those profit margin demands, Smith stayed active in the real estate world, and a few years ago began quietly buying up mansions in West Palm Beach, Florida, where he and his wife keep a residence in addition to their Southampton, New York, mega-mansion.
DFMworkers.org has reported the sale details before, but it’s worth noting that the timing of these purchases is curious — it began in 2013, shortly after the sell-off of Journal Register and MediaNews real estate assets went into full swing.
The buying spree — all told it was 16 mansions purchased for $57 million — might well have remained a secret if it weren’t for diligent digging by the local press.
The titles were all owned by a company called L Jakes LLC. The address on the deeds was a New York Post Office box, but there was nothing obvious linking the purchases to Alden or the Smiths.
One thing stood out, though: the PO box was also used by Shiva General Partner Inc., the holding company headed by Smith’s wife, Barbara Stovall Smith. According to Florida corporation records, Shiva is an affiliate of L Jakes LLC.
The Palm Beach Daily News’ Darrell Hofheinz figured that out. After Hofheinz’s two stories on the initial purchases were published in August 2013, subsequent acquisitions of Florida properties used a different New York address — though one that continues the ties to Smith and Alden.
It was the 19th floor of the Lipstick Building, an address shared by Shiva, L Jakes and Twenty Lake Holdings.
Twenty Lake is the affiliate that’s been selling off the real estate assets of Digital First Media’s newspapers across the country, including those of the Journal Register. It appears again that Smith doesn’t mind mixing personal investments with his business.
It’s unclear exactly where the millions from the sales of these news assets has ended up, since that information does not have to be publicly disclosed.
The calls for transparency and accountability for the management of an essential democratic institution
so far haven’t been heeded.
Some financial media have reported that Smith owns at least a third of Alden’s holdings, while other put it much higher.
Past investors in Alden have included the Knight Foundation (a nonprofit that, ironically, funds sustainable journalism projects), pension funds for employees of Coca-Cola, Citigroup and CalPERS (the California public employees’ retirement fund), as well as some nonprofit foundations and Swiss financial institutions.
Most of those companies have divested their Alden investments during the past couple of years. But one that lingers, while legal, seems to be another example of Smith’s propensity to double dip: more than $236 million in pension funds for some Digital First Media employees are invested in Alden, although the company said this year it’s in the process of pulling them out.
In its latest filings with the Securities and Exchange Commission, Alden notes that it now has 10 or fewer investors in its $2.1 billion in assets, with a minimum stake of $2 million.
Reports — ranging from Harvard’s esteemed Nieman Lab to alt weeklies around the country — have been shining light on Alden’s decimation of newspapers, but the calls for transparency and accountability for the management of an essential democratic institution so far haven’t been heeded.
Recent Digital First Media press releases and other public statements give the impression that Smith is staying more in the background than ever, letting his company’s young president, Heath Freeman, take the helm.
Last year, however, Smith was to make a rare public appearance. He was scheduled as one of the speakers at SALT, the eclectic investor conference founded by Donald Trump’s short-lived communications chief Anthony Scaramucci. It’s sort of the TED Talks of finance, and the Las Vegas event draws the likes of Karl Rove, Joe Biden, Dana Carvey and Ben Bernanke.
Smith was slated to discuss “Turning undervalued securities into alpha-generating profits.”
But his name was pulled from the agenda shortly before the conference. Ever the recluse, Smith had no photo attached to his bio, and no media reported on his unexplained absence.
If Smith has become concerned about leaving a legacy in his later years, he needn’t worry.
As Emily Bell recently wrote in the Columbia Jouralism Review: “When, in the future, we look back on the history of American journalism, the collapse of local newspapers will be a source of shame.”
Indeed, Smith’s role in the pillaging and destruction of American newspapers is certain to leave its mark.