By Julie Reynolds
Vulture hedge fund Alden Global Capital’s efforts to take over the Gannett newspaper chain took some bizarre turns in recent weeks — developments that might seem laughable if not for the danger it poses to the future of local news.
As if to put an exclamation point on the stakes involved, Alden announced another round of buyouts at its Southern California News Group on March 25 – news that followed announced cuts at the St. Paul Pioneer Press and the Boulder Daily Camera.
Alden owns Digital First Media, the next-largest chain after Gannett, and it’s lacing up its gloves for a battle at Gannett’s annual shareholder meeting on May 16. And it’s enlisting the support of Oaktree Capital Management, a fellow vulture firm best known for profiting from the subprime housing and Puerto Rican debt crises.
“It’s a bit like flashing a fake ID to get into a nightclub.”
Jennifer Saba, Reuters
But first, a recap: Alden launched a hostile takeover bid in January. Gannett’s board refused to sell for DFM’s offer of around $1.4 billion, so Alden nominated a board slate comprised of its own executives and friends. Gannett shot back that the slate was rife with conflicts and said Alden didn’t have the money to buy Gannett anyway, to which Alden responded by referencing one of the most bizarre letters since President Trump’s doctor gave him that famously glowing health report.
The letter in question was from Oaktree Capital Management, and has not been made public. But in a March 20 press release, DFM said Oaktree’s letter indicated it was “highly confident” about Alden’s ability to borrow $1.725 billion for the Gannett takeover. DFM chairman Joe Fuchs said the company could possibly obtain financing “within weeks.”
(By the way, DFM has recently re-rebranded itself as MediaNews Group, or MNG Enterprises.)
As far as we can tell, here’s what the Oaktree letter supporting Alden’s takeover did not say:
- It did not say Alden has the money in place to buy Gannett.
- It did not say Oaktree would provide the money to Alden (which makes sense, considering that Oaktree is not an investment bank or lender).
- It did not say how or from whom Alden might borrow the money.
“It’s a bit like flashing a fake ID to get into a nightclub,” Reuters’ Jennifer Saba wrote. “MNG Enterprises, the owner of the Denver Post, is waving a questionable piece of paper in an effort to gain credibility in its hostile pursuit of (a) fellow newspaper publisher.”
Gannett quickly shot back with its own letter. In a 9-page memo to shareholders, Gannett’s board said Alden — a.k.a. DFM, a.k.a. MNG — “is attempting to take control of Gannett through a problematic, two-pronged approach: first, it demanded that Gannett sell itself to MNG and, second, MNG nominated a control slate of candidates, all of whom are affiliated with MNG and/or Alden, to stand for election to the Gannett board.”
Gannett says DFM’s takeover bid “undervalues the company and is not credible or actionable, given MNG’s failure to produce committed financing and its persistent refusal to answer basic questions regarding how it would overcome likely antitrust and pension issues, among other important matters.”
All this was followed by Gannett’s most acerbic accusations to date. The letter to shareholders slammed Alden’s history of “engaging in transactions that have destroyed value while lining the pockets of Alden and its affiliates, including, at MNG, stripping newspapers of certain assets while paying Alden generous management fees.
“Your board believes that MNG’s nominees are being put forward simply to advance Alden’s goal: to enrich itself at the expense of Gannett’s shareholders.”
If Alden’s slate wins, Gannett’s board chair J. Jeffry Louis wrote, “it would effectively transfer control of the board to MNG … at which point MNG and Alden would be able to advance a self-serving agenda at yet another American news media company.”
After Gannett publicly scoffed at the Oaktree letter this week, things got even stranger. Gannett suggested that Alden was secretly angling for Gannett to buy DFM, not vice versa. After a February 7 meeting between the two chains’ executives, Gannett’s board concluded that DFM was “ultimately seeking to be acquired by Gannett” and was “using its proposal as a ploy to open discussions for such a transaction.”
A detailed timeline, included in a proxy statement filed by Gannett with the Securities and Exchange Commission, states that since 2015, Alden president Heath Freeman “occasionally approached” Gannett representatives to suggest the company should buy DFM.
After having breakfast with one Gannett executive last December, Freeman “casually suggested” that a “combination” could be in both companies’ interest, the filing stated. Another DFM executive brought up a similar “combination” proposal that same month.
But nothing came of the intimations, the SEC filing said, until the evening of January 13, when Gannett’s board learned from a Wall Street Journal article that Alden was launching a hostile takeover.
The Oaktree connection
Just who is Oaktree Capital Management, anyway?
As a player in the Gannett takeover saga, it’s ironic to note that Oaktree itself was recently acquired by Toronto-based Brookfield Asset Management, which bought a 62 percent stake in the hedge fund. Brookfield has its own convoluted history running Brazilian energy companies, but that’s a tale for another day.
Oaktree, however, is a classic study of the vulture hedge fund and what can happen when profiting from others’ misery is the end game.
It was a major player in the U.S. subprime housing crisis, buying up distressed mortgages and foreclosing on struggling homeowners. As recently as 2017, it was still foreclosing on homeowners in Baltimore and Dublin, among other places.
“The fact that some faceless vulture fund now owns my home, and wants me out, and doesn’t care about me, is making me really angry,” Tara Robinson told the Irish Independent.
Two Baltimore city council members even called out Oaktree for moving swiftly to foreclose instead of trying to negotiate new mortgage terms. Ironically, Oaktree bought more than 600 distressed mortgages under a federal program meant to stabilize neighborhoods “hit hardest by the foreclosure crisis.”
Oaktree is also among the top hedge funds attempting to profit from Puerto Rico’s debt crisis. According to the territory’s Centro de Periodismo Investigativo, Oaktree held more than $410 million in Puerto Rican pension debt, and public records show it’s still part of a lawsuit aiming to collect on those claims.
Oaktree is currently bidding to privatize several U.S. airports, including St. Louis, New York’s Westchester County and Nashville, after it recently sold its 50 percent ownership stake in San Juan’s international airport.
Meanwhile, back at Digital First…
Despite promises from DFM’s head honchos Joe Fuchs and Guy Gilmore that the company wasn’t pursuing further staff reductions after “ripping off the BandAid” last year, staff at the chain’s Southern California News Group got a rude awakening this week. Buyout offers were made across the group to most employees who weren’t reporters. Reports indicate the design center in Monrovia, which lays out DFM papers from all over California, might be hardest hit. At this point, the expected numbers appear to be under a couple dozen, and there’s no word whether layoffs are in store if buyout targets aren’t met.
A similar buyout plan was offered late last month at St. Paul Pioneer Press, where six to eight jobs are to be cut. In Boulder, staff at the Daily Camera learned soon after attending their editor Kevin Kaufman’s funeral that Kaufman would not be replaced and more staff reductions were coming.
Alden is also in hot water this month with creditors in the bankruptcy of Payless ShoeSource, which Alden controls and is currently dismantling by shutting down more than 2000 stores nationwide. The creditors claim that a proposed financing plan “unjustifiably releases owner Alden Global Capital from liability for contributing to the giant shoe chain’s collapse.”
All this while Alden prepares for the fight of the century at Gannett’s annual meeting on May 16. While Gannett’s board has urged shareholders to ignore Alden’s “blue card” that lists the takeover slate, Alden continues to respond with its most ridiculous, craven and baldest-faced claim ever: that it “saves newspapers.”
To that end, Alden has set up a website, savegannett.com, where you can see the faces of its proposed board slate and read about their concerns — which are not about journalism, of course, but about “value creation opportunities.”
And no, I’m really not making this up.