Alden Global Capital's Business Model Destroys Newspapers for Little Gain

(Bloomberg View) -- 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.

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.  “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.

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.

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

  1. For a deeper dive into Alden Global Capital and its newspapers, I highly recommend Reynolds’s work, which has been archived here

  2. My efforts to reach Freeman, both by email and telephone, were met with silence.

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