Editor’s Note: This article first appeared on SaveLocalNews.org on Feb. 18, 2022.
In a stunning Securities and Exchange Commission filing, Lee Enterprises took a big swing at Alden Global Capital, the hedge fund attempting a hostile takeover of the news chain.
The filing comes days after a Delaware chancery court shot down Alden’s amateurish attempt to nominate two board members to Lee.
Lee’s SEC filing includes a scathing presentation to investors ahead of its March 10 annual meeting. Alden had hoped to increase its control of the company at that meeting by nominating two associates to Lee’s board and urging shareholders to vote against the board’s incumbent nominees.
“Alden and its affiliates have a track record of wringing cash from newspaper businesses to enrich itself at stakeholders’ expense,” the investor presentation said.
Quoting from media reports and lawsuits, the presentation described Alden co-founders in unflattering terms: Randall Smith is a ‘reclusive Palm Beach septuagenarian,’ it said, while Heath Freeman is a ‘man who has no real affinity for newspapers.’”
The presentation also quoted United Media Guild, a NewsGuild Local that represents 12 Lee newsrooms, saying that a shareholder rejection of Alden’s takeover offer “will send a message across the country that predators like them have no place in journalism.”
Alden, meanwhile, has countered that its leadership would bring “significant value for stockholders while improving the quality of journalism for readers and subscribers.” The Seattle Times (also quoted in the presentation) described Alden’s frequent claim that it saves newspapers as “the Big Bad Wolf telling the first little pig that he wanted to strengthen his straw house.”
After decrying Alden’s record of extreme staff layoffs at its MediaNews Group newspapers, the rest of the report focused on promoting Lee’s “three pillar” vision for increasing digital revenue and downplaying its own not-great-but-not-as-bad-as-Alden layoff record, which continues with this week’s loss of two beloved editors at the Omaha World-Herald.
The SEC filing is surprising in its ferocity, considering that Alden has now all but lost its ability to nominate board members.
Shell games
The Delaware court noted in its Feb. 14 opinion that Alden had radically changed its structure in March 2021, and because of this was able to hide the fact that it had acquired even more Lee shares, a move I’ve described as “sleight-of-hand.” Alden became a “family fund” instead of an investment adviser, which means it no longer has to file statements declaring which stocks it owns.
According to the court, Lee even asked if Alden had suddenly sold its Lee shares, because nothing about them appeared in Alden’s May 17 stock ownership filing with the SEC.
But it was a classic corporate shell game: Alden held the shares in a subsidiary it had created to extract cash from its newspapers, called Strategic Opportunities LLC. The LLC used funds from Alden’s own newspapers to buy its initial 3.4 million shares of Lee in January 2020.
The court noted that Alden’s lawyers brushed off Lee’s questions about who owned the stock by stating that Freeman didn’t plan to reply to the email.
The court also wrote that on Oct. 20, 2021, an investment banker at Moelis & Company sent a text to Freeman suggesting, “It may be a good time to make a run at Lee Enterprises,” to which Freeman responded, “Let’s talk Lee.”
Alden made its first bid to buy Lee for $24 a share on Nov. 19, 2021, and that day it publicly disclosed that its subsidiary Strategic Opportunities owned 6.1% of Lee stock. In a description that would be comical if the stakes weren’t so dire, Alden admitted that Strategic was controlled by MNG, which therefore owned the shares, and MNG was controlled by Alden, which therefore actually owned the shares.
That weekend Alden considered putting up three board nominations, the court wrote. It ultimately settled on two.
In the ensuing months, Alden ignored a simple requirement that would have allowed it to nominate board members: it didn’t transfer its stock to make Alden a shareholder “of record” and, for no clear reason, missed the deadline to do so.
By Dec. 1, board member Herbert Moloney III shared a copy of The Atlantic’s October cover story titled “A Secretive Hedge Fund is Gutting Newsrooms: Inside Alden Global Capital,” a report that builds on SaveLocalNews’ years of investigation.
The next day, the board ruled Alden’s nominations invalid. And that afternoon, Alden finally made Strategic Opportunities a shareholder of record — but it was six days after the deadline.
Apparently, Alden’s classic brand of ownership obfuscation, along with plain old incompetence, led to its defeat.
By Dec. 9, Lee’s board soundly rejected Alden’s takeover bid. This week, the Delaware court agreed that Alden had missed the boat.
Still, the war isn’t over. Alden, stung after its courtroom loss, is now launching a “Vote No” campaign against Moloney and incumbent Mary Junck, showing exactly what a sore loser Alden is.