alden global capital

DN 5/18 alden global capital

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https://www.bloomberg.com/view/articles/2018-03-26/alden-global-capital-s-business-model-destroys-newspapers-for-little-gain

joe nocera

Heath Freeman, the 37-year-old hedge fund manager who just bought the Boston Herald, is a character straight out of the movie “Wall Street.”

You remember the plot of “Wall Street,” don’t you?

The good guy is the dad, played by Martin Sheen, who heads the maintenance workers’ union at Bluestar Airlines. His son, played the actor’s own son Charlie Sheen, is a young, ambitious stockbroker who falls under the sway of Gordon Gekko, a rapacious corporate raider.

Trying to curry favor with Gekko, the younger Sheen’s character does a variety of unsavory tasks, while absorbing Gekko’s gospel that “greed is good.” For a while he lives the Wall Street high life, until he realizes that Gekko is planning to dismember his father’s airline and put a lot of good people out of work. At which point he regains his moral compass and Does The Right Thing.

Heath Freeman’s father, Brian, wasn’t a union man himself but spent his career representing unions as an investment banker. When he was in his 30s, he fought on the side of airline workers as the companies sought to renegotiate union contracts, forcing the airlines to give up stock and a piece of future profits in return for employee concessions. He was totally dedicated to his clients. In a 1985 New York Times profile, he was described as a “whirling dervish; he’ll hang in there on weekends, through all-night sessions and keep coming back for more.”

Brian Freeman died at the too-young age of 56, when his son Heath was still in college. After the younger Freeman graduated, he went to work on Wall Street, where he eventually landed at a hedge fund run by an under-the-radar, vulture investor named Randall Smith, who specialized in “distressed debt.” It was under Smith’s tutelage that he learned to be, well, a rapacious corporate raider.

In 2007, Smith started Alden Global Capital LLC, installing Freeman as president. The firm and its president have since become notorious as a destroyer of newspapers. In 2010, Alden Global acquired out of bankruptcy MediaNews Group Inc., the newspaper empire William Dean Singleton had built, which included such prominent regional papers as the Denver Post, the Salt Lake City Tribune and the St. Paul Pioneer Press. According to its website, the company, now named Digital First Media, has grown to 97 newspapers.

It is no secret that the newspaper business is in decline. So it’s hardly surprising that Freeman would feel the need to shrink the head count at his newspapers, just as almost every other newspaper owner has had to do for years.

But what sets Freeman apart is that he seems to have a rather unique view of a newspaper’s purpose. In this view, his papers are intended not so much to inform the public or hold officialdom to account, but to supply cash for Freeman to use elsewhere. His layoffs aren’t just painful. They are savage.

For instance, according to figures compiled by the NewsGuild, the union that represents workers at Digital First Media properties, the staff of the Denver Post has fallen from 184 journalists to 99 between 2012 and 2017. The Pottstown Mercury in Pennsylvania went from 73 journalists in 2012 to 19 in 2017. That’s right: 19. The Norristown Times-Herald, also in Pennsylvania, shrank from 45 journalists to 12. The San Jose Mercury News and the Orange County Register, both of which had been dominant papers in their regions before Alden Global bought them, have also been decimated by layoffs.[90% SJMN?]

Last year, Digital First Media’s chief executive, Steve Rossi, sent a company-wide email saying that the company was “solidly profitable,” and that “advertising revenue has been significantly better” than competitors. Yet the layoffs have not let up. Just last week, Alden Global imposed another round of layoffs, including a third of the staff at the Denver Post. As recently as 2009, Denver had two competing newspapers; it is now down to 66 journalists in one demoralized newsroom.

Can you really cover a metro area of over 2 million people with 66 journalists? Of course not. Although those running his papers claim the cuts are driven by necessity, the layoffs seem far in excess of what’s happening elsewhere in the industry. Instead, it appears that Freeman is cutting costs so he can pull out cash, and then, as the business dwindles because the product is damaged, he cuts some more, pulling out yet more cash while further damaging the product.

“There’s no long-term strategy other than milking and continuing to cut,” the “Newsonomics” writer Ken Doctor told the journalist Julie Reynolds. 1 “Their view is that in 2021, they’ll deal with that then. Whatever remnants are there, they’ll try to find a buyer.” Actually, at the rate Freeman is going, there may not be any remnants by 2021.

And what is Freeman doing with the cash? According to a recent lawsuit, he is siphoning it into some of his hedge fund’s poorly performing investments. Among other things, Alden Global invested $80 million in Homex, “a bankrupt developer charged by the Securities and Exchange Commission with committing the biggest real estate fraud in Mexican history,” as Reynolds put it. Most recently, again according to the lawsuit, it plowed $158 million into a failing pharmacy chain, Fred’s Inc. 2

Indeed, without the ability to bleed his papers dry, one has to wonder whether Freeman would even have a hedge fund at this point. Although it is usually described as having $2 billion under management, that’s a little hard to believe given its recent track record. It currently holds three stocks, according to Bloomberg data: ParkerVision Inc., a stock currently worth 80 cents per share; General Electric, whose problems are well-documented; and the aforementioned Fred’s. In late 2016, Alden Global revealed that it owned 25 percent of the stock in Fred’s, an announcement that caused the price to shoot up to over $20 a share. Today the stock is at $2.75, its lowest price in 21 years.

With Fred’s, Freeman has tried to flex his “shareholder activist” muscles. He began by complaining about a handful of Fred’s board members. The company responded by signing a cooperation agreement with Alden Global, and put two executives from Digital First Media on its board. Then in September, it named Freeman as chairman. Alas, the new Alden Global board members haven’t turned the ship around.

According to the lawsuit, which was brought by a minority shareholder in Digital First Media, Freeman has used a wholly owned subsidiary of Alden Global’s newspaper company to make investments that should have been made by the hedge fund itself -- including that $158 million investment in Fred’s. In other words, the cash Freeman freed up by laying off journalists was used to prop up the pharmacy chain. Putting aside the venality of the move, it is hard to see the logic.

But the pattern continues. Last week, no sooner had Digital First Media closed on its purchase of the Boston Herald than it announced that it would cut the staff from 240 employees to 175.

“The people who remain,” added the Boston Globe, “are bracing for more cuts.” Why would they expect anything else?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

For a deeper dive into Alden Global Capital and its newspapers, I highly recommend Reynolds’s work, which has been archived here.
My efforts to reach Freeman, both by email and telephone, were met with silence.

To contact the author of this story:

Joe Nocera at jnocera3@bloomberg.net

https://www.thenation.com/article/meet-the-vulture-capitalists-who-savaged-the-denver-post/

no linx

Meet the Vulture Capitalists Who Savaged ‘The Denver Post’

Stop Alden Global Capital before it kills again.

By Julie Reynolds

April 13, 2018

The rebellion last week by The Denver Post’s editorial board against newspaper’s hedge-fund owners has spurred a national outcry, including front-page articles in The New York Times and coverage in The Washington Post. Finally, mainstream voices seem to get it that newspapers are a public trust, not an ATM for vulture capitalists. And they seem willing to consider the notion that newspapers are not endangered solely because the big, bad Internet made print obsolete. No, the public-trust function of newspapers is also endangered because greedy investors who care nothing for journalism are intentionally bleeding dry the newspapers they own.

A group of more public-spirited investors declared on Thursday (April 12) that they hoped to buy and save The Denver Post. That will require the agreement of Alden Global Capital, one of the slimiest corporate villains of our time. Alden Global Capital owns The Denver Post, as well as hundreds of other newspapers and websites across the country, through its holding company Digital First Media. Under Alden’s direction, Digital First Media has been eviscerating newspapers at more than twice the national rate, driving the kind of mass layoffs The Denver Post’s newsroom experienced on April 9. Since Alden took control of Digital First Media, the country’s second-largest newspaper chain:{, in 2011, DFM executives have eliminated a staggering two out of every three staff positions at its media properties.

Where has the money gone? That part of the scandal hasn’t yet been revealed in its entirety, but a lawsuit unfolding in a Delaware courtroom provides some damning evidence. Court records show that the vulture capitalists at Alden have bled at least $241 million in cash—plus many millions more in real estate—from Digital First Media. Meanwhile, Alden “borrowed” $248.5 million from newspaper workers’ pension funds, and had the newspapers take on $200 million in debt to finance its own investments.}:

Furthermore, court records bolstered by additional shoe-leather reporting reveal that the top executives of Alden Global Capital have rewarded themselves with tens of millions of dollars’ worth of prime real estate in Florida and the Hamptons for their personal enjoyment. They have also plowed hundreds of millions of dollars bled from their newspapers into non-journalistic investments across the United States and around the world, many of which are at best ethically questionable.

Let’s start with Alden cofounder and president Heath Freeman. While The Denver Post’s newsroom staff was being shrunk from 200 to 50 after Alden bought the paper in 2011, Mr. Freeman left his Manhattan penthouse and bought a $4.8-million, five-bedroom, five-bath waterfront mansion on two acres in East Hampton, New York. He also bought the pond next door. But the 3,500-square-foot residence apparently wasn’t enough of a mega-mansion for Freeman, who is now constructing a massive addition that appears to expand the house by perhaps a third.

161 East Lake Drive Montauk, New York from Skytography on Vimeo.

Video of Freeman’s house at 161 E. Lake Dr. Montauk.

The purchase price of Freeman’s main house alone—not counting the pond and new addition—would be more than enough to pay all 25 of the recently departed Denver Post reporters for more than two years.

Thomas Peele, a Pulitzer Prize–winning investigative reporter for Digital First’s Bay Area News Group, recently checked out the property and even tweeted a photo of it. Peele describes the location as exclusive and isolated, facing “Lake Montauk, which is a vast harbor with access to Long Island Sound. There is a small airport about a mile away that offers access to Montauk to the rich and famous…. Across the street there are several private roads leading to mansions on hillsides near where Teddy Roosevelt camped with his Rough Riders after the Spanish American War. The east side of Lake Montauk is dotted with private marinas and boat clubs. Freeman’s house is among the largest on the three-mile-long road that ends at Long Island Sound.”

Freeman’s splurge follows in the footsteps of his Alden co-founder and mentor, Randall D. Smith. As I reported in The Nation last year, Smith’s acquisition of the Digital First chain and rapid sell-off of its real estate was quickly followed by his buying spree of Palm Beach, Florida, mansions at a cost of more than $57 million. All told, Smith picked up 16 properties, and that’s not counting his two sprawling Southampton spreads, valued by the local assessor last year at $8.7 million and $16.8 million.

Alden’s executives have become known as “vulture” capitalists, but a closer look at their record suggests they’re really more like wolves. To continue the metaphor, Alden doesn’t just feed off the carcasses of dying or dead businesses, it chases down weak members of the herd and kills them.

While some newspaper owners invest and diversify to keep their papers (and their civic obligations) alive, Alden gorges itself and then leaves its papers to die. According to industry insider Ken Doctor, Alden’s executives plan to feed for two to three more years—because the papers are still quite profitable—until all Digital First newspapers are shut down or someone comes along to buy what little remains.

According to Securities and Exchanges Commission records and Alden’s own admission in recent court filings, Alden bled cash directly from the Digital First chain to take advantage of the Greek debt crisis, in 2016 shuffling more than $73 million from the news chain into a Cayman Island account that purchased Greek sovereign bonds. If we look at how fellow hedge funds are handling a similar debt crisis in Puerto Rico, it seems likely Alden’s investment wasn’t helping the Greek economy.

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Alden was sued last month by another hedge fund, Solus Alternative Asset Management, a minority shareholder in Digital First Media; Solus claims that Alden hid financial information. The lawsuit further alleges collusion between Alden and Digital First’s executives—most of whom have close ties to Alden—to divert millions into investments unrelated to media. While Alden admitted the investments took place, it denied the collusion or that it “purposefully obfuscated” its activities.

In a legal response to the suit, Alden admitted that Digital First set up subsidiaries that spent hundreds of millions of the news chain’s dollars to invest in Alden-related funds. Besides the Greek debt, these include $158 million invested in the Memphis-based Fred’s pharmacy chain, plus $10 million invested in the Cayman Island-based Alden Global CRE Opportunities Master Fund LP. Months later, that fund bought an $80 million chunk of Homex, a bankrupt developer charged by the Securities and Exchange Commission with committing the biggest real-estate fraud in Mexican history.

Digital First even invested $248.5 million of its newspaper employees’ pension dollars in two Alden funds, including another based in the Cayman Islands. After the employees complained, the company began moving the pensions into other investments.

While no evidence has surfaced yet that Alden’s other investments were directly financed by newspaper layoffs, the investments nevertheless resemble a caricature of capitalism at its most greedy and amoral. In Russia, for example, Alden has invested in a company facing criminal charges for further polluting Chelyabinsk, a city in western Siberia that is among the most polluted places on earth, thanks to nuclear waste and toxic run-off. The company in question is Mechel, a Russian energy and steel firm; Alden owned $1.9 million worth of Mechel stock as of January 2017. Mechel is charged with failing to install clean air controls. But the company reportedly has the advantage of highly placed friends. The firm’s prosecution, reported Moscow-based journalist John Helmer, coincided with “lobbying by well-known names around President Vladimir Putin to save Mechel.”

Alden dabbles in corruption-tainted firms in Brazil as well. Starting in 2016, it held a major stake in Brazil’s state-run energy firm, Companhia Energética de Minas Gerais, also called Cemig. That’s around the time police began investigations into what would become Brazil’s largest government-corruption scandal, Operation Car Wash, which tanked the country’s economy and left thousands of skilled workers in the lurch. “Police suspect politicians were bribed to use their influence to help companies that did business with the power companies,” Reuters reported.

Alden also made sure not to be left holding the bag when coal giant Peabody Energy, one of America’s worst polluters, faced bankruptcy in 2013. Peabody tried to leave some 20,000 of its workers without pensions and retiree health care, a plot that was averted with an undisclosed settlement Peabody undertook in a failed attempt to avert bankruptcy. The bankruptcy itself was suspect, and one critic in the financial press noted that “the bankruptcy settlement reserved much of the proceeds to…a core group of creditors and Peabody management.” In late 2014, more than two years before a judge approved the settlement, Alden acquired 1.2 million shares of Peabody Coal. The Environmental Protection Agency, seven Native American tribes, and others filed pollution damage claims against Peabody that totaled billions of dollars, but the final bankruptcy settlement in March 2017 magically reduced these billions to a mere $43 million of pay-outs. Six months later, Alden divested its $38.94 million worth of Peabody shares.

It is these actions that are driving newspapers such as The Denver Post into ruin. Heath Freeman and Randall Smith have no business owning newspapers; their track record makes it abundantly clear that Alden Global Capital has zero interest in the news business, much less the informed citizenry that journalism sustains.

The Nation

Let’s Start Saving Journalism by Saving This One Newspaper

John Nichols

On Thursday, a group of Colorado investors announced they had raised $10 million in pledges in hopes of buying The Denver Post from Alden. A number of concerned citizens and even public officials expressed their support for the move.

“There is a shared concern that Alden won’t do the right thing ever and that the community needs to step up,” J.B. Holston, the engineering and computer-science school dean at the University of Denver, told the Post. “They seem to have no sense on how to optimize or protect the value of an asset.”

Those who support a vibrant local press can only hope Alden will do what it does best: Take the money and run.

Julie ReynoldsJulie Reynolds is an investigative journalist and the author of Blood in the Fields. She has written for NPR, PBS, and the NewsGuild, which represents unionized media workers, including at Digital First Media.