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Questions raised about funding of proposed publisher buyout


 Source: The Washington Post, May 6, 2021 article


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

Chicago 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)

By Jonathan O'Connell and Sara Fisher Ellison

May 6, 2021 at 10:37 a.m. EDT

In 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.

But 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.”

“One 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.

But the 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.

“I 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.

But 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.

The 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."

It 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.

But 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 investment.

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.

“The 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.’ ”

A 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.

Tim 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.

“Has 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 Forbes.

“We 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 Project.

On Tuesday the NewsGuild sent a letter to Tribune shareholders asking that they reject the deal.

But 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 found

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.”

But what was of great disappointment to Slaine was the unwillingness of other investors, particularly in Chicago, to step up and buy their hometown newspapers.

“The 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.”

Due 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.

Zell 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.”


By Jonathan O'Connell

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.

By Sara Fisher Ellison

Sara Fisher Ellison is a senior lecturer of economics at Massachusetts Institute of Technology.


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