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April 5, 2021, 9:08 a.m.

A rival bid might actually keep Tribune out of Alden Global Capital’s hands — and Alden might be just fine with that

Win or lose, the hedge fund comes out richer.

They’ve got the money. The Wall Street Journal reported Sunday night that the rival bid for Tribune Publishing has moved from do-gooder pipe dream to an actual pile of (digital) cash, sitting in a bank account somewhere, waiting to be spent.

The prospect of this bid — from a hotel executive and a Swiss billionaire — is noteworthy as much because of who it’s against as who it’s from. This roughly $680 million bid is the best opportunity to stop Tribune’s papers from going to Alden Global Capital, the Patrick-Bateman-asking-if-you-like-Huey-Lewis-and-the-News of the news industry.

A special committee of Tribune’s board has determined that a roughly $680 million, $18.50-a-share bid submitted late last week by Choice Hotels International Inc. Chairman Stewart Bainum and Hansjörg Wyss is reasonably likely to lead to a proposal that is superior to Alden’s $635 million deal, people familiar with the matter said. That is legal deal-speak indicating Alden may need to raise its bid or risk losing the deal…

If Alden loses the deal, it would mark a stunning, 11th-hour turnaround for the New York hedge fund, and a major victory for critics who say its model of aggressive cost-cutting has hurt the local news industry. Alden had spent nearly a year-and-a-half positioning itself to take over Tribune, publisher of nine large-market daily newspapers including the Chicago Tribune, New York Daily News and the Baltimore Sun.

Alden struck a deal in February to pay $17.25 per share for the rest of the company. It had agreed to separately sell Mr. Bainum the Baltimore Sun for $65 million once the Tribune deal was finalized. That side deal fell apart over disagreements about the cost of continuing services the Sun would have received from Tribune after the sale.

Assuming the Bainum/Wyss deal is indeed sound — and Swiss billionaires tend to have cash at the ready — there are seemingly two paths forward.

ONE: Alden decides to increase its bid. The hedge fund’s model is pretty straightforward: buy papers; cut costs to the bone, and then another 10 percent or so; underinvest in digital; milk the cashflow from declining print; ride the plane into the ground. (Hey, at least it’s an ethos.) It’s a model that benefits from scale; more papers mean it’s easier to slice that 1 or 2 percent deeper into the marrow via shared cost structures.

With Gannett and GateHouse tied up and McClatchy newly hedge-funded, there just aren’t that many opportunities left to add scale in a Tribune-sized chunk. So it might be willing to kick in a few more millions. When it offered $17.25 a share, it had been Tribune’s assumed buyer for more than a year; it wasn’t too worried about competition. Now that a rival has surfaced, it might decide that $18.75 is still decent value.

Or…

TWO: Alden could just step aside and count its cash.

Remember two years ago, when Alden made a hostile bid for Gannett? After many dueling press releases and brusque talk, Alden’s offer fizzled. But its bid had accomplished one goal: It put Gannett in play as a merger partner. It pushed the company to seek a different chain that would make for a less brutal partner than Alden.

Why was Alden okay with losing? Because it was already Gannett’s largest shareholder, owning 7.5 percent of the company. From the moment Alden announced its takeover attempt to when Gannett merged with GateHouse, Gannett stock increased around 20 percent — not a bad return on some angry press releases.

Alden’s pursuit of Tribune has lasted longer (now more than 16 months) and seemed more serious, with Alden execs taking seats on Tribune’s board and taking a meaningful role in Tribune management. It seems unlikely that it would go through all that if it didn’t think Tribune’s dailies would be a useful addition to its conglomeration.

But…Alden currently owns 32 percent of Tribune. It bought most of that (25 of the 32 percent) from ex-Tribune boss Michael Ferro at $13 a share; the rest it bought for between $10.94 and $12.98. Take the middle of that and you’ve got an average price somewhere around $12.75.

Alden’s bid for Tribune was $17.25. That’s now prompted a counter of $18.50. If Bainum and Wyss are successful, Alden’s shares will have increased in value 45 percent in less than a year and a half. That’s not a bad return in the newspaper business these days.

Alden wins either way. So this might be an L it’s happy to take.

Photo by alamode used under a Creative Commons license.

POSTED     April 5, 2021, 9:08 a.m.
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