New filing shows “America’s worst newspaper owners” have bought almost a third of the news giant
By Julie Reynolds
“The old world is over, and the new one — one of ghost newspapers, news deserts, and underinformed communities — is headed straight for us.”
— News industry analyst Ken Doctor, after Alden Global Capital acquired a stake in Tribune Publishing
Less than a week after the surprise sale of a large stake in Tribune Publishing to vulture hedge fund Alden Global Capital, employees at both chains’ papers are still trying to figure out what’s in store. And now we’re learning that Alden owns even more shares of Tribune stock than was previously reported.
One thing is certain: for Tribune newspapers and the communities that depend on them, this is terrible news.
Alden purchased 9.07 million shares from former Tribune board chair Michael W. Ferro for around $118 million. The purchase was made by the Cayman Islands-based Alden Global Opportunities Master Fund, L.P. and Alden Global Value Recovery Master Fund, L.P., according to an SEC filing.
That, combined with other shares Alden acquired on the open market, means that Alden now owns 32 percent of Tribune, according to a new filing Monday. Alden began buying up the stock on Oct. 30, the filing shows.
TIMELINE OF ALDEN’S PURCHASES OF TRIBUNE STOCK
Alden president Heath Freeman stated in the filing that he may increase his investment “at any time.” In fact, the purchase agreement doesn’t prohibit Alden from buying even more Tribune stock. Ferro had such a restriction when he bought into Tribune, and Los Angeles Times owner Patrick Soon-Shiong, who owns 24.6 percent of Tribune shares and is its second-largest shareholder, signed a similar “standstill” pact in which he agreed he wouldn’t try to take over the company. (The biotech billionaire Soon-Shiong bought the LA Times from Ferro last year but kept his shares of Tribune.)
The two Alden funds listed as the actual purchasers of Ferro’s stock are among the five Alden shell companies that together own Digital First Media, now rebranded as MNG after years of critical press coverage (much of it here) apparently tainted the Digital First brand’s reputation.
Alden has used its Digital First papers as a personal cash machine, withdrawing, by my latest estimate, more than $500 million from the struggling newspaper chain. I say struggling not in terms of profits, which happen to be the highest in the industry, but in terms of job losses — Digital First papers’ staffing has dropped an astonishing 75 percent since Alden took over in 2011, according to data from The NewsGuild, which represents workers at 13 Digital First papers (and also the Chicago Tribune, the flagship of Tribune Publishing).
That’s three times the job loss rate of other news chains.
Oh, and Alden also sold nearly all its newspapers’ buildings and real estate, taking away the papers’ only financial safety net.
When Alden has strip-mined Digital First papers of people and resources, it has typically used a shell company it created for this purpose, Strategic Investment Opportunities Fund LLC. It most recently used the LLC to buy a roughly $50 million stake in GateHouse newspapers’ parent company, New Media Investment Group Inc.
But according to court filings and Alden’s own admissions, Alden has taken money out of Digital First newspapers without going through the shell company.
So it’s entirely possible the $118 million purchase of Tribune shares was made with Digital First money, since the newspaper chain is owned by the same two Alden funds that bought the stock. But we just don’t know. The Chicago Tribune itself reported that “some industry analysts believe Alden will seek to grow its stake in Tribune Publishing, perhaps through the acquisition of Soon-Shiong’s 8.7 million shares.”
Tribune Publishing has said it’s “in talks” with Alden about the two board seats.
The union representing journalists both at Digital First papers and the Chicago Tribune expressed “deep concern” about the deal.
“We call on the Tribune board and shareholders to reject Alden’s approach to news: stripping staffs and assets to bare bones and abandoning their obligation to fully report the news and hold the powerful to account,” said NewsGuild president Bernie Lunzer in a statement.
The Chicago NewsGuild also issued a statement, saying, “Alden has a well-established history of harming media institutions and journalists.”
Union representing Chicago Tribune editorial employees weighs in on sale of largest stake in Tribune Publishing to Alden Global. (They’re not fans.) pic.twitter.com/U0RHMt0G1p
— David Folkenflik (@davidfolkenflik) November 20, 2019
News industry analyst Ken Doctor, writing for Harvard’s Nieman Lab, didn’t mince words about the dangers posed by the deal, calling Alden “America’s worst newspaper owners.”
At least one editorial by the financial press has questioned why Alden should be given two board seats.
“Why should Alden get a seat? Other shareholders don’t get special rights to name directors. Alden has done nothing for the company to warrant special treatment,” wrote the editorial board of Crane’s Chicago Business. “Meanwhile, there’s plenty of reason to keep Alden off Tribune Publishing’s board, starting with the likelihood that its executives will wreck the company that publishes the Chicago Tribune.”
The Crane’s editors warned that Tribune’s directors “are the last line of defense between the looters at Alden and the Chicago Tribune as well as eight other major metros.”
“If Alden gets two Tribune board seats, it will be that much better positioned to ram through the kinds of changes that have decimated other newspapers in its grip… Tribune directors have a duty to protect communities from Alden.”
Lessons from a failed takeover (Take note, Tribune board)
Whether those two seats will be enough to allow Alden to have its way with Tribune isn’t clear. But we can be clear about one thing: Alden has a habit of placing the same people on all the boards takes over. These people have profited handsomely from the now-shuttered Fred’s pharmacy chain and the now-shuttered Payless ShoeSource chain (see a pattern here?).
But Alden’s takeover efforts have failed a few times too. Most notably, they failed this year when Alden tried to take control of the Gannett news chain’s board, ultimately leading to Gannett’s merger this month with GateHouse.
Less publicized was its attempt to take control of Pier 1 Imports in 2016.
After becoming the retail chain’s largest investor in September of that year (with 7.6 million shares), Freeman sent a letter to Pier 1’s board that reads a lot like Freeman’s board-takeover letters sent to Fred’s, Payless and Gannett.
“Unfortunately, to date the board has show little desire or interest in working constructively with your largest shareholder,” Freeman wrote to Pier 1’s board. “We therefore encourage you to reevaluate your dismissive approach.”
It criticized the decline in Pier 1’s share price, which is laughable considering that Fred’s shares have hit the floor since Alden took control.
The Pier 1 board saw the threat and quickly adopted what’s called a “poison pill” to keep the pillagers from the gate. The measure was aimed at keeping any one shareholders from owning more than 10 percent of Pier 1’s stock, making a takeover more difficult.
Freeman issued an indignant statement, saying he was “severely disappointed that Pier 1 has resorted to this highly questionable form of entrenchment rather than engage constructively with one of its largest shareholders.”
Freeman soon exited Pier 1, tail between his legs. And while some are predicted Pier 1 may soon file for bankruptcy, the fact is it’s still in business and may yet survive restructuring its debt if it does file. Its stock traded at $7.68 on Monday, compared to Fred’s .02 — down from roughly $17 a share when Alden first bought into the pharmacy chain. Yes, that’s two cents.
Given what’s happened with Fred’s and Payless, Pier 1 would almost certainly not have survived if Freeman’s effort had succeeded.
The Pier 1 board’s swift action makes you wonder why the Tribune board is apparently rolling over at Alden’s behest.