Alden Global Is Out for More Newspaper Blood

(Bloomberg Opinion) -- In some ways, 2018 was an awful year for Heath Freeman and Alden Global Capital LLC, the hedge fund he runs. According to Bloomberg data, the fund lost 48 percent last year — and this on the heels of a 51 percent drop in 2017. Its most important holding, Fred’s Inc., an undistinguished pharmacy chain in the southeastern U.S. that Alden Global bought at an average price of $12 a share — and where Freeman has installed himself as chairman — ended the year at $1.89.

In another way, however, Freeman and Alden Global had a splendid 2018. The privately held MNG Enterprises Inc. — aka Digital First Media — which Freeman controls, had margins of 16.2 percent in fiscal 2018,  which is almost unheard among media companies these days. That’s up from 14.4 percent in 2017. Although Digital First doesn’t publicly report profits, the media analyst Ken Doctor managed to obtain its fiscal 2017 numbers. They showed a profit of $159 million on revenue of $939 million. Its improved 2018 margins strongly suggests higher profits as well.

Digital First revealed its record of increasing margins because it wanted to show the world how much better its financial performance was than that of Gannett Co. On Monday, Alden Global, via Digital First/MNG Enterprises, offered to buy Gannett for $1.36 billion. If a deal were consummated, the combination would make it the largest newspaper chain in the country.

The market, needless to say, was delighted; Gannett’s stock rose some 21 percent Monday in the expectation that Gannett will soon be taken out, if not by Digital First then by some other bidder. It’s also true that Gannett is vulnerable because, like most newspaper chains, it has struggled as the newspaper business has been disintermediated by the internet.

This was not, I hasten to add, because Gannett was afraid to cut costs; it had a reputation for conducting frequent layoffs — here’s a story, for instance, about two rounds of cuts at the Memphis Commercial Appeal in 2017. If you read papers like the Wilmington News Journal or the Louisville Courier-Journal in their pre-Gannett glory days, you mourned what they became once Gannett got ahold of them.

Even so, Gannett was always mindful that it was in the journalism business, and its executives tended to come through the ranks on the business side of its publications. Its chief executive, Robert Dickey — who is poised to retire in the spring — has been with the company for 30 years. Although most of his effort in recent years has been toward “digitizing” the company, he told USA Today that one of his proudest moments as CEO was when Gannett’s journalists won three Pulitzer Prizes in 2018.

Which is another way of saying that for all its cost-cutting, Gannett has never gone about it with the ruthless abandon of Freeman and Alden Global. I can’t imagine that Freeman cares about winning a Pulitzer Prize — I can’t even imagine that he cares about journalism. Instead, he makes cuts deep enough to ensure profits, even though they invariably damage the product. Then, when the diminished product causes a certain percentage of subscribers to abandon the paper, he makes another deep cut. And another. Doctor, the media analyst, said it is “unusually naked in its strategy of extraction” that is likely to continue until there’s nothing left but a carcass.

What’s more, according to a lawsuit that was filed last March, a minority shareholder in MNG Enterprises accused Alden Global of diverting millions of dollars from its newspapers into some of its money-losing investments, such as Fred’s. (The suit was settled over the summer.) After Digital First slashed the staff of the Denver Post last spring to 60 journalists — down from a peak of 300 — the journalists actually published a repudiation of its owner in the paper, and picketed Alden Global’s offices in New York’s Lipstick Building.

Early Monday morning, in a lengthy letter to Gannett’s board of directors, R. Joseph Fuchs, Digital First’s chairman, laid out the financial case against Gannett management: The stock was down 41 percent since 2016. Free cash flow was down 50 percent. Its digital acquisitions weren’t working. And so on.

All true. But here’s the part that was really galling: In the making the case for why Gannett should sell itself to Digital First, Fuchs claimed that the company cared about the newspapers. “Our interest in Gannett,” he wrote, “is a reaffirmation of [our] commitment to the newspaper industry and our desire to grow in the newspaper business over the long term.” Digital First “saves newspapers,” Fuchs said. If it took over the Gannett papers it would “provide a home for the Company’s businesses and valued employees so they can continue to serve their local communities.”

What a crock. If Digital First and Alden Global get their hands on Gannett, they will do what they always do: cut till it bleeds, and then cut some more. And they’ll keep cutting until the day arrives when there’s nothing left.

That’s how Heath Freeman ensures that every year is a good year. For him, at least.

The company’s fiscal year ends in June.

The Lipstick Building is most famous for serving as the offices of Bernie Madoff’s Ponzi scheme.

To contact the editor responsible for this story: Stacey Shick at sshick@bloomberg.net

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

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is co-author of “Indentured: The Inside Story of the Rebellion Against the NCAA.”

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