Tribune stock sale leaves company vulnerable to hedge fund known for ‘cutting costs to the bone’

Across the country, a growing storm in media ownership has put hedge funds in charge of more U.S. newsrooms. This week, the storm blew through Chicago.

In buying a 25.2% stake in Tribune Publishing, owner of the Chicago Tribune, Alden Global Capital has gained substantial influence over the company. Workers at its newspapers, which include the New York Daily News and the Baltimore Sun, took to social media to express outrage and fear for their jobs.

They have reason to worry — and it’s about more than just the bleak outlook for the news business, which has seen ad revenues plummet as commerce and audiences scatter to digital sources. New York-based Alden is known for slashing jobs as its first order of business. It’s been called a serial destroyer of newspapers.

“Their actions say that they don’t see a growth story in media,” said Joshua Benton, director of the Nieman Journalism Lab at Harvard University. “They are intent on cutting costs to the bone and beyond and pulling cash out along the way.”

Alden spent $117.9 million to acquire the Tribune stake of its former chairman, Michael Ferro Jr. It is now in line to get two seats on the company board, which would expand from six to eight. To get control, it would have to increase its stake or find allies among other shareholders.

Its strategy is unknown and Alden, controlled by Heath Freeman, did not respond to an interview request Wednesday. But Freeman has shown he seldom plays second fiddle when he moves on a company. His Media News Group owns about 100 publications and he tried to take over the Gannett newspaper chain, arguing that it was wasting money on its digital efforts.

Analysts said that was typical Freeman. They said that as he slashes payrolls, he doesn’t plow the savings into improving his papers’ digital presentations.

Michael Kupinski, director of research at Noble Capital Markets, noted that pattern in saying the Alden sale may hurt the longterm prospects of Tribune Publishing. Kupinski slashed his price target on Tribune Publishing to $12 per share from $19. The shares closed Wednesday at $11.18, up nearly 15 percent on news of the Alden stake. Based on Tuesday’s prices, Ferro got about a 33% premium for his bulk sale to Alden.

“In our view, Tribune’s clean balance sheet, significant cash flow and motivated seller all made it an easy target,” Kupinski wrote. But noting Alden’s reputation for milking cash flow, he added, “We believe that there is increased risk in an unfavorable transaction or that the company will not invest in its digital transition as aggressively as originally planned.”

Tribune Publishing did not comment Wednesday. In a statement issued Tuesday, Chairman David Dreier appeared to draw a line in the sand for Alden. “Tribune is a leader in each of our eight markets providing quality, locally focused journalism. Our board believes that solid journalism enhances shareholder value and that will continue to be our driving principle,” Dreier said.

Alden runs its newspapers through Media News Group and its titles include the Boston Herald, the Denver Post and the Orange County Register. Its Tribune Publishing acquisition was announced as the former GateHouse and Gannett chains closed a $1.1 billion merger that had heavy involvement from hedge funds. More job cuts are expected as a result.

The NewsGuild, a labor union, has tracked job cuts at the 13 Media News outlets where it has members.

In written testimony for the U.S. House Committee on Financial Services, NewsGuild President Bernie Lunzer said Alden has slashed employment by 71% at the unionized papers since 2012. Lunzer said Alden “has slashed staff and sold real estate to extract cash from the news organizations without regard to the role news organizations play in communities.”

Real estate could account for some of its interest in Tribune Publishing. The company said in a regulatory filing earlier this year that it acquired an interest in 22 acres in New Jersey when it bought the New York Daily News, and other property in the acquisition of the Virginian-Pilot of Norfolk, Va.

In Chicago, the company no longer owns its former office building, the Tribune Tower. It still has some control over its printing plant at 777 W. Chicago Ave. known as the Freedom Center. The latter site, in play for a potential megadevelopment, was offered up by city officials in its failed pitch for Amazon’s corporate headquarters.

The Chicago Tribune and the Chicago Sun-Times are printed at the Freedom Center. Tribune Publishing has a lease on the property until 2023, with two 10-year renewal options after that. Any developer would have to buy out its leasehold.

Chicago Reader goes nonprofit

Amid the Tribune news was another Chicago media development Wednesday. The alt-weekly Chicago Reader said it would convert to nonprofit ownership in 2020. The Reader, which business leaders Elzie Higginbottom and Leonard Goodman bought from the Sun-Times in 2018, has solicited donations to stay afloat.

Nieman’s Benton said nonprofit status can help clarify a publication’s mission but that it’s unclear how well a private newspaper can adapt to the change. The Salt Lake Tribune is the first traditional daily to go nonprofit and the industry is following it closely. “Basically, being nonprofit is a tax status and not a business model,” Benton said.