This article first appeared on April 25, 2019, on the website of DFMworkers.org.
By Julie Reynolds
April 26, 2019 – It’s been a tough week for Alden Global Capital, the hedge fund trying to take over the nation’s largest newspaper chain, as senators, shareholders, creditors and federal agencies are all looking into a slew of self-dealing allegations.
First, the Washington Post reported last week that the Labor Department is interested in the roughly $250 million of news workers’ pension monies that Alden quietly shifted into its own Cayman-Island-based accounts.
Alden, of course, owns the Digital First Media newspaper chain, also known as MediaNewsGroup, and has been positioning to take over Gannett since the beginning of the year.
As we first reported two years ago on DFMworkers, the shift of pension monies was made without employees’ knowledge and was brought to light by Tony Mulligan, who represents NewsGuild employees at The Denver Post. The plans covered 1,576 current and former workers in San Jose and 1,812 in Denver, according to Form 5500 reports filed with the Labor Department.
Then, on Thursday, Alden announced it was pulling three members from its proposed board slate, which aimed to take over the Gannett newspaper chain. The slate had been heavily criticized by Gannett’s current board and by labor unions including the NewsGuild.
In a Securities and Exchange Commission filing Thursday, Alden announced it was withdrawing Digital First executives Guy Gilmore and Joe Fuchs from the lineup, as well as Tim Burton, one of Alden’s hand-picked board members at the Fred’s pharmacy chain.
Still running are Alden president Heath Freeman, former DFM exec Steve Rossi and Freeman’s longtime friend and real estate sale-leaseback expert Dana Needleman.
Alden is now asking shareholders to vote for its three remaining nominees and any additional Gannett-endorsed nominees except three in particular: John E. Cody, Stephen W. Coll and Lawrence S. Kramer. It would mean Alden would only control a minority of Gannett’s eight-member board if successful. Alden quickly updated its website, savegannett.com, on Thursday to reflect its downsized slate.
The announcement quickly caused an uproar, especially since some Gannett shareholders have already voted.
But for longtime Alden-watchers, it’s a familiar move. It seems likely Alden, sensing imminent defeat, is hoping it can complete a more gradual hostile takeover once it gets its foot in the door.
Freeman did exactly that with the board of the Fred’s pharmacy chain, which is now mostly composed of the people Alden wanted on Gannett’s board. (Because pharmacies and newspapers are such similar businesses, right?)
Gannett immediately issued a rebuke, saying the three remaining nominees still have substantial conflicts of interest. It also said the three nominees’ ties to a “direct competitor” (Digital First) would keep the Alden slate from fulfilling the “functions of the seat to which they are being nominated.”
Speaking of Fred’s, the Alden-controlled chain just announced it couldn’t file its annual report on time because the company is busy liquidating 159 stores. Fred’s stock hit a low of $1.60 Thursday. Alden’s original investment of $158 million – all siphoned, by Alden’s own admission, from Digital First newspapers – is now worth only $14.7 million. That hasn’t stopped Freeman and Rossi from paying themselves half a million dollars for taking the helm of Fred’s.
Alden is also in hot water with creditors for the Payless ShoeSource chain, which Alden controls. Payless is now closing its more than 2,000 stores in the United States and Canada. In federal court filings last month, creditors accused Alden of engineering a $45 million loan to Payless — referred to as “the Latin American loan” — that “permitted Alden to gain a senior position with respect to other term loan lenders.”
It also raised concerns that Payless “recently and inexplicably leased office space in Dallas from an Alden affiliate,” moving Payless’s headquarters there. Coincidentally, Fred’s is also quietly moving its headquarters to the same building, according to staff emails and company ads describing its “corporate office” in Dallas.
The court filing also raised questions about possible self-dealing when Alden “entered into a shared services contract with Aerosoles, an Alden-affiliated company, raising numerous questions as to the appropriateness of that transaction.”
Senators raise questions
The Gannett takeover attempt is another example of Alden’s “long, undistinguished record of hollowing out every company it touches,” writes Bloomberg’s Mark Gongloff. Or as columnist Joe Nocera wrote this week, Alden “has mastered the art of maintaining profitability by cutting staff, and then cutting staff again as readers stop buying the diminished product. And then doing it again … and again … until all that’s left is a shell.”
Meanwhile, federal inquiries into Alden’s affairs continue. Sen. Chuck Schumer (D-NY) sent letters to the Department of Justice and the Pension Benefit Guaranty Corp. asking about potential antitrust and other conflicts if Alden were to take over Gannett.
And Sen. Sherrod Brown (D-Ohio) on Thursday wrote to Alden executives Heath Freeman and Randall Smith, asking them to stop the Gannett takeover and concluding that “Your newspaper-killing business model is bad for newspaper workers and retirees, bad for communities, bad for the public, and bad for democracy.”
Right now, Alden Global Capital is trying to take over Gannett newspapers. AGC has a history of buying local papers, then dismantling them by firing reporters & selling company assets. That's bad for newspaper workers and retirees, for communities, for the public & for democracy.
— Sherrod Brown (@SenSherrodBrown) April 25, 2019