Nieman Foundation at Harvard
Missiles and drone strikes may have temporarily driven everyone’s eyes elsewhere — including those in the news industry — but the new decade’s big story in the news business looks a lot like the old one’s: Local journalism is spiraling downward — and picking up speed.
In newspapers, the focus is on Tribune Publishing and McClatchy — two of the few remaining national news chains not operated by hedge funds or private equity, each with its own reasons to enter the new year warily.
That bit of HR news arrived less than two months after industry vulture Alden Global Capital bought up 32 percent of the company. It may not be operating Tribune formally — but Tribune is suddenly acting a lot like an Alden company.
Under the buyout plan, any employee with eight or more years experience is invited to leave. Stories on the buyouts noted Alden’s big buy and speculated about its influence, given the two board seats Tribune quickly granted it. Monday’s news struck fear in the company’s offices, given Alden’s unapologetic rapaciousness.
But the company’s influence on Tribune is much more involved, knowledgeable sources tell me. It’s not those two new board members who’ve exerted their — it’s Alden executives.
“A number of the senior executives have been going to Chicago,” says one source about the activity. “They say they are advising on cutting expense.”
What kinds of expenses? Discussions have been wide-ranging, another source says. They include “infrastructure expenses,” reducing the cost of leased office space, and — as Monday’s news would us — doing what Alden has gained its infamy doing: cut headcount.
Alden’s Tribune buy in November sparked much speculation. Did it want to buy Tribune and merge it with its majority-owned MNG Enterprises (née MediaNews Group, briefly Digital First Media)? Did it want Tribune to buy MNG? Was it trying to arrange a way to cash out?
Some observers have made the exercise way too complex. Alden President Heath Freeman has one goal — to make money — and the declining, dispirited newspaper business keeps offering up opportunity after opportunity. The life of a newspaper owner gets a lot simpler if you drop that whole “civic mission” thing.
What those visiting Alden execs have been telling Tribune execs is the same thing they told Gannett execs a year ago, publicly and privately: Cut expenses, boost profits.
As Alden began to get a look at Tribune’s internal numbers, it saw a problem — and an opportunity.
Sources say Tribune was budgeting for earnings to be down about 20 percent in what’s going to be a dismal 2020 for all local daily companies. Not so fast, said the Alden execs — we’ll come to Chicago and help you restore those profits.
We don’t know specific numbers. Tribune was coy Monday on how many positions it wants to eliminate in the announced buyout (and/or in layoffs that would follow). In 2019, Tribune reported earnings (EBITDA) of $97 million. Twenty percent down from that is about $20 million. That may be the dollar figure these headcount and infrastructure cuts are aimed at hitting.
It was still at least somewhat of an open question how directly involved Alden was in Tribune. There’s no doubt left now how closely the companies are already working together.
Given that prime strategy of newspaper companies this year remains M&A — as it was when I first labeled all this the Consolidation Games exactly one year ago today — make no mistake that Excels are flying back and forth on the numbers of a Tribune/MNG merger.
How soon might we see one?
Just over a year ago, Tribune almost found another mate, McClatchy. In December 2018, Tribune surprised McClatchy by rejecting its $16.50 cash and stock offer. (Tribune is trading at $12.74 today.) That on-and-off mating dance, which has been revisited occasionally, ran into the financial realities of newspapering.
It was in mid-November that McClatchy made the announcement that shook an already shaken industry: It wouldn’t be able to make its expected pension payments. (That announcement came just three days before Alden consummated its deal with Michael Ferro to buy his group’s stake in Tribune — perhaps coincidentally.) Since then, in cascading fashion, the company has appealed to the federal Pension Benefit Guaranty Corp for “distressed” relief and, just a week ago, simply stopped paying part of its pension obligation.
An aside: And it did that clumsily. The affected McClatchy pensioners, probably numbering in the hundreds, got a rude surprise when their January “non-qualified” pensions flowed into their bank accounts as usual on the first of the month — and then got reversed. Fullest possible disclosure here: I’m one of them, having worked at Knight Ridder in various ways for two decades. “Qualified” pensions are the standard plans, governed by federal law (ERISA) and protected by the PBGC. “Non-qualified” plans are agreements between a company and, in this case, their higher-salaried execs; bumps up in pension payments. McClatchy said it was those broader pension woes that led it to cancel the January payments. “We’re in active negotiation with PBGC, so we made a decision to withhold non-qualified payments,” Elaine Lintecum, McClatchy’s CFO, told me then. So why did the monthly payments go out as normal? That’s apparently an issue between McClatchy and Northern Trust, which administers the plan. It didn’t help that McClatchy didn’t notify non-qualified pension receivers that their wouldn’t get their usual checks — and still hasn’t.
In any event — McClatchy’s value has plummeted. Its stock traded at around $8 in December 2018, when it tried to buy Tribune; around $2.75 two months ago, pre-announcement; and at $0.45 today. Tribune is unlikely to consider any kind of merger with McClatchy until its finds a way out of its financial distress. The same’s true for any other company that might consider it. CEO Craig Forman would like that way out to be a voluntary financial reorganization, but financial observers say a bankruptcy filing — perhaps soon or even very soon — is more likely.
And who’s left sitting in the middle of all this with a Cheshire grin? Alden.
It’ll be “the market” that pushes those mergers and acquisitions. But at this point, “the market” looks a lot like Alden Global Capital and Fortress Investment Group, which now operates New Gannett. Recent events — and a few more than could come soon — seem to be increasing the chances of that outcome.
