In a hedge fund’s bid for
Tribune’s newspapers, a hidden risk lurks in the fine print
Experts say Alden Global
Capital’s offer to invest in the Chicago Tribune, Baltimore Sun and other
newspapers isn’t what it seems
Tribune newspaper delivery trucks wait to be loaded. The paper is the
largest of those that Alden Global Capital would acquire as part of a
proposed deal. (Christopher Dilts/Bloomberg)
and Sara Fisher
May 6, 2021 at 10:37 a.m. EDT
its bid to acquire Tribune Publishing, the hedge fund Alden Global Capital
vowed to provide $375 million in cash to the owner of the Chicago Tribune,
the Baltimore Sun and other titles — a theoretically welcome influx to an
investment-starved newspaper chain.
industry and financial experts have looked at the fine print and see
something starkly different: Alden, they say, has already signaled that it
plans to saddle Tribune with debt that could further hollow out the company,
and it may not have $375 million available to begin with.
Alden has made the certainty of its finances a central part of its push
to acquire Tribune, saying in a December
letter that it “can fully finance the Transaction with cash on
hand” and "we will have no financing conditions and will not require third
party debt or equity to finance the Transaction.”
would think if they’re saying that, they can fund it out of their own
pocket,” said Doug Arthur, and analyst with Huber Research. Indeed,
Tribune’s board praised Alden’s bid for being “not subject to any financing
condition,” when it supported the proposal in
a Securities & Exchange Commission filing.
deal includes a brief but potentially critical passage saying
that Alden "has the right to seek to finance a portion or all of the
$375,000,000 in cash with the proceeds from debt and/or equity financing
from its affiliates or third parties.”
“That means they’re going to try to borrow money," Arthur said. He said it
would not surprise him to see Alden borrow heavily against Tribune’s revenue
and put in as little of its own money as possible.
think they’re mostly interested in the fact that the stock is cheap, there
is a lot of cash flow, a lot of cash, and they think it’s a sitting duck,"
he said. "Very few people want to own newspapers, and they’re taking
advantage of that.”
The battle for Tribune: Inside
the campaign to find new owners for a legendary group of newspapers
Alden representatives say their $630 million bid is clearly the best option
for Tribune’s shareholders. The hedge fund and its managing partner, Heath
Freeman, are in
the driver’s seat to acquire Tribune since one of the investors
in a competing
bid by Maryland hotelier Stewart Bainum Jr. recently backed out.
Tribune shareholders are now preparing to vote on Alden’s deal May 21.
experts say a heavy debt burden is not likely to benefit Tribune, which only
nine years ago emerged from its last bankruptcy, caused by an infamous
private equity takeover in 2007.
stakes for staff and readers of Tribune papers couldn’t be higher. Alden has
stripped dozens of its other newspapers of employees and assets in order to
boost profits. Bainum has said he would sell many of the individual papers
to local owners and keep the Sun and other Maryland papers.
“Alden’s track record has been clear,” said Ann Marie Lipinski, curator of
the Nieman Foundation for Journalism at Harvard, and a former editor of the
Chicago Tribune. “Nothing about their interest — either at Tribune or at
other properties — suggests that they are motivated by a desire to enhance
quality journalism in any of these communities. If there are additional
financial pressures, it can only exacerbate a grim situation."
isn’t just Alden’s vow to provide $375 million in cash that has drawn
scrutiny, but the hedge fund’s assertion that it has that sum of money in
the first place.
Alden plans to pay for the purchase with money from two funds, the Alden
Global Opportunities Master Fund and the Alden Global Value Recovery Master
Fund. Those funds’ assets total $570 million, per a recent
disclosure by the Tribune board’s financial advisor, Lazard.
experts said those funds also appear to include Alden’s nearly 32 percent
stake in Tribune, worth around $200 million, and its controlling stake in
its existing media company, MediaNews Group, the parent of about 200 titles
including the Denver Post, the Mercury News and the Orange County Register.
It isn’t clear how Alden would free up enough cash to make such an
Alden’s total assets under management have also declined considerably. Last
year the company reported to the SEC having $764 million in assets under
management, down from $2.1 billion in 2017. Alden had made major investments
in the Fred’s Pharmacy and Payless shoes chains, which both then went
bankrupt (in the Payless case, twice).
Although the investment rules of Alden’s funds are not public, most funds do
not not allow the entirety of the money in them to be poured into one
illiquid investment such as a newspaper chain, experts say.
“They haven’t got the money they’re claiming to have," said an independent
investor who is considering buying one of the Tribune papers from whoever
wins the deal.
board of directors should have known to investigate and confirm the
financial resources of a prospective buyer that would be paying all equity
cash," the investor said, speaking on condition of anonymity because of
ongoing discussions. "The fact that they didn’t is frankly stunning.”
Attorney Gordon Z. Novod, of the law firm Grant & Eisenhofer, said despite
Alden’s commitments the clause would likely allow the hedge fund to borrow
heavily to get Tribune, which has spent years cutting costs and selling
assets in order to wipe its books nearly clean of debt.
“It’s one thing for [Alden] to come and say, ‘we are going to put in all
cash for and equity,’ " Novod said. "It’s another thing to say ‘it’s an
all-cash deal, but we’re going to finance that cash with debt.’ ”
spokeswoman for Alden, Chrissy Carvalho, declined to answer questions
individually but issued a statement saying Alden had access to the necessary
funds. She said the bid had been reviewed by advisers hired by
the Tribune board’s special committee for considering the deal, financial
services firm Lazard and the law firm Davis Polk & and Wardwell.
“Alden has the resources as described in the February 16, 2021 commitment
letter, which was reviewed and vetted by Tribune’s financial and legal
advisors including Lazard and Davis Polk,” Carvalho said.
Ragones, a spokesman for the Tribune board’s committee considering the deal,
declined to comment for this story. A spokeswoman for Lazard, which analyzed
the deal for the committee, did not respond to requests for comment.
Alden is still on the hook for the $375 million commitment, which means
Tribune’s shareholders (and board members) will be taken care of, even if
its employees and readers are not, according to the terms of the deal.
Alden demonstrated it is investing in any of the papers it owns? No,” said
John Chachas at Methuselah Advisors, a boutique investment bank with a long
track record of advising media companies. "So I have little enthusiasm for
them owning Tribune’s papers. Maybe the Tribune directors don’t feel this is
within their scope. I think it is.”
Alden’s record of aggressively cutting costs and mismanaging
employees’ pension funds has drawn intense criticism and scrutiny
from the national NewsGuild union, which represents more than 25,000
communications workers in the U.S. and Canada.
Union-affiliated journalists and consultants have highlighted
additional concerns about Alden’s cash position, including that
in March, Alden terminated its
registration as an SEC-registered investment adviser. Last April, Alden
stopped making payments on a Manhattan lease and abandoned its offices
according to a lawsuit from its landlord, a lawsuit reported earlier by
question whether Alden has the cash to make good on its equity commitment,
given that Tribune stock and illiquid assets such as MediaNews Group and
real estate make up a significant portion of Alden’s assets,” said Jim Baker
of a union-affiliated advocacy group, the Private Equity Stakeholder
Tuesday the NewsGuild sent a
letter to Tribune shareholders asking that they reject the deal.
Alden is increasingly looking like Tribune’s only option. Bainum agreed last
year to buy the Baltimore Sun from Alden, but their negotiations hit a
sticking point over fees. Bainum subsequently mounted an effort to form a
consortium to buy all of Tribune. His efforts have stalled, however, due in
part to a lack of investors interested in the Chicago Tribune. A Bainum
representative declined comment.
The hedge fund set to buy
Tribune Publishing mismanaged employees’ pensions, federal investigators
Mason Slaine, a Florida investor who has expressed interest in buying the
Orlando Sentinel and the South Florida Sun Sentinel from the Tribune
portfolio, said he would expect Alden to “leverage as much as they can and
take as much money out of the company.”
what was of great disappointment to Slaine was the unwillingness of other
investors, particularly in Chicago, to step up and buy their hometown
real tragedy at the end of the day is that no one showed up to buy these
things. ... There was no one in Chicago. All these stand-up, wealthy people
in Chicago, and no one showed up," he said. "Very disappointing.”
to the loss of advertising funds to online competitors, many of the national
newspaper chains have filed for bankruptcy at some point in recent decades,
among them McClatchy, Lee Enterprises and Tribune itself, which found itself
drowning in loans taken out by private magnate Sam Zell after he bought
Tribune in 2007.
walked away from the deal the way he walked into it, as a billionaire. But
the company’s newspapers began more than a decade of painful cuts that left
them shells of their previous selves. Arthur said he could see aspects of
that history repeating themselves.
“When Tribune went bankrupt Zell had very little exposure," Arthur said. "Of
course, the company was wiped out.”
Jonathan O'Connell is a reporter focused on business investigations and
corporate accountability. He has covered economic development,
commercial real estate and President Donald Trump's business. He joined
The Post in 2010.
Fisher Ellison is a senior lecturer of economics at Massachusetts
Institute of Technology.
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