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July 1, 2020, 12:06 p.m.

Tribune can buy more time by selling more control to Alden Global Capital

The vulture fund may be just fine with waiting a bit longer to make its next move to consolidate the local newspaper industry. Meanwhile, newsrooms wait.

We’ve been telling you for months now that June 30 was going to be a big day for American newspapers. That was the day that Tribune Publishing — owner of big dailies in Chicago, Baltimore, New York, Orlando, Hartford, and South Florida — would be suddenly vulnerable to a change in ownership, and not a particularly pleasant one.

The hedge fund and opportunistic pathogen Alden Global Capital bought up 32 percent of Tribune shares last fall and was certainly capable of buying up another 19 percent or so to take control. (At today’s share prices, it’d only take about $70 million.) In an effort to…avoid? postpone? that fate, Tribune agreed to add two new seats to its six-person board and give them both to Alden partisans. In exchange, Alden agreed to not buy any more Tribune stock until June 30.

In May, Tribune reduced its board back to six seats, meaning Alden now controlled 2 of 6 rather than 2 of 8. And yesterday was June 30.

So…what happens now? It appears Tribune is deciding to take another step in its slow-motion surrender. The Wall Street Journal’s Cara Lombardo and Lukas I. Alpert:

Tribune Publishing Co. is in talks to add the co-founder of Alden Global Capital LLC to its board as part of an agreement that would prevent the hedge fund from making a hostile bid to buy the rest of the newspaper company in the near future, according to people familiar with the matter.

Randall Smith, who runs Alden alongside Heath Freeman, is in talks to join the board, the people said. The deal would also extend a standstill agreement between Tribune and Alden that expires Tuesday. The length of the extension being discussed wasn’t immediately clear.

If this happens — Tribune’s board is meeting today — Alden would now have 3 of the 7 seats on the board.1 And one of them would be filled by Alden’s reclusive top boss and founder, Randall Smith, the “grandfather of vulture investing,” a man of whom there is only one known photograph and who last gave a press interview in the 1980s.

We won’t find out until there’s a public deal whether this standstill extension is for three months, six months, or what. But it sure seems curious that this process is being stretched out this far. Alden clearly wants Tribune; it’s currently the fund’s No. 1 holding. It could have bought 51 percent of shares in November instead of 32 percent. Why do this year-long boardroom dance? I can think of a few reasons.

  • More time means more opportunity to see how the newspaper industry shakes out. There are a lot of moving parts among the big chains, as Ken Doctor wrote about most recently. Alden made its move on Tribune mere hours after America’s two largest newspaper chains, Gannett and GateHouse, merged. Only a few weeks later, it bought up a chunk of Lee Enterprises, a stake it just increased last month.

    At various points over the past decade, Alden has owned stakes in just about every publicly traded newspaper chain: Gannett, Belo, McClatchy, Postmedia, Media General, Journal Communications, Freedom Communications, Philadelphia Newspaper Holdings, Journal Register Company. (Those last five aren’t around any more.) Its current newspaper holding company, MNG Enterprises, was the result of merging East-heavy Journal Register and West-heavy MediaNews Group to create nationwide reach. Remember, it made a (perhaps half-hearted) attempt to buy Gannett last year.

    Alden’s plans for the newspaper business are systemic. Like a basketball player who always goes to his right, Alden only has one move: build scale and use it to cut costs to the bone. Tribune is the No. 3 newspaper chain in the United States, but it’s also in only eight markets. For Alden, adding Tribune to MNG isn’t the end game — it’s a step in that direction.

    And there are still a lot of loose pieces in the chain puzzle. Gannett, the No. 1 chain, may or may not be able to make the enormous debt payments its merger required. McClatchy, No. 2, is in bankruptcy court and will likely have a new owner lined up by the end of the month. Lee could end up in bankruptcy again. Given all that movement, it’s possible Alden is willing to wait for the right moment, happy to snap up board seats along the way.

  • More time means someone else does more of the cutting. Since Alden took its stake, Tribune has made a very Aldenesque series of cuts — to newsrooms, yes, but even more so in the executive ranks. (Like the editor of the New York Daily News also editing The Morning Call of Allentown, Pa., whenever he has a spare moment?)

    Whenever a MNG + Tribune merger happens, the cost savings will mostly be at the exec level — clearing out VPs of this-and-such, turning a publisher of one newspaper into a publisher of six, unifying backends in advertising, marketing services, tech, and so on. Tribune gutting its executive ranks ahead of time makes that transition easier.

    Now, Alden is not a company traditionally known for being shy about making cuts. It’s kind of their thing! It’s one of the benefits of being run by a gazillionaire unknown to facial recognition systems: You can’t do too much damage to your public image if you don’t have one. But I do wonder if that’s changing a bit — perhaps in preparations for whatever bigger moves Alden has in its plans. Its president, Heath Freeman, gave an interview to The Washington Post last month, “his first interview — part of his effort to rewrite the narrative about himself, along with letters to select lawmakers and communications with other newspaper publishers.”

    Freeman’s effort at spin didn’t particularly work — it isn’t good when the headline of your first big story says “no one’s buying it” — but it has been a noticeable attempt. So maybe they’re happy to let someone else hold the ax for a while longer.

  • A little something called COVID-19. Newspapers have not been a growth business for more than a decade, but they also weren’t quite such a financial collapse business until the coronavirus arrived, when shutdowns and quarantines killed off 30, 40, 50 percent of advertising revenues. Alden had no way of knowing COVID-19 was coming last November, of course2 — but every newspaper company in America has seen their budgets bleed deeply into the red.

    That accomplished two things from Alden’s perspective. It means those companies have had to make their own rounds of cuts — again, getting costs closer to where Alden wants them to be. And it drives their market value down — meaning they’ll be cheaper to acquire, either via M&A or in a bankruptcy court. (Indeed, the Journal story says Alden “didn’t intend to move quickly, because of the instability triggered by the pandemic.”)

    A few months ago, Alden might have looked at COVID-19 and thought the worst would be over by June 30, that revenue numbers would be bouncing back to normal. But the recent surge in cases makes it clear the pain isn’t going away anytime soon. So Alden might be happy to postpone full Tribune ownership a few months if it knows those months will be terrible financially.

I’m not sure what’s the right historical metaphor for what Tribune’s been doing. My mind keeps going back to Neville Chamberlain handing Germany the Sudetenland and thinking it would bring “peace for our time.” But that’s not fair — Alden’s awful, but not that awful. Maybe it’s more like this: A bully wants to steal your lunch. You tell him he can have a quarter of today’s lunch, a third of tomorrow’s, half of the day after that’s, and then all of your lunch, everyday, forever. You can see the short-term advantage — but the story ends up in the same place.

Photo of a vulture in Morelia, Michoacán, Mexico by Edson Maciel.

  1. That’s assuming Randall Smith would be given an additional seat, not replace a current non-Alden board member. []
  2. Unless…? []
POSTED     July 1, 2020, 12:06 p.m.
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