THE DESTRUCTION OF LOCAL NEWS
Cost-slashing hedge fund that owns Philly-area newspapers makes run at Courier-Post, News Journal and more
by Bob Fernandez, Updated: January 14, 2019- 10:49 AM
Alden Global Capital, a New York hedge fund known for extreme cost-cutting at the newspapers it owns from the Philadelphia suburbs to California, is making a $1.4 billion hostile bid for Gannett Co. Inc., the publisher of the Courier-Post in Cherry Hill, the News Journal in Wilmington, and USA Today.
In an open letter to the Gannett board, the fund offered $12 a share, or 41 percent above Gannett’s closing stock price on Dec. 31. The letter also called for Gannett to halt investments into digital news properties. Gannett shares closed at $11.82, up 21.23 percent, or $2.07.
• Digital First Media closes mold-ridden Pottstown Mercury building
• Philly’s Digital First papers face harsh cuts, potential ‘lights-out scenario’
The firm making the offer is MNG Enterprises, better known by its sister company Digital First. Both are controlled by Alden Global. MNG said Monday that it already has a 7.5 percent stake in Gannett.
A deal, if it goes through, would strengthen Alden Global’s hold on the Philadelphia regional newspaper market and make it the largest publisher of newspapers in the country.
“Really, their biggest claim … is cutting costs,” said Rick Edmonds, media-business analyst for the nonprofit Poynter Institute in Florida. “This should be worrisome for Gannett employees.”
Investors such as Alden Global still see newspapers as an opportunity to make short-term profits through steep cost cuts, even as news consumption is going online, and with it the ad dollars. However, Alden’s bid surprised industry experts, who say it will put Gannett into play for a buyout or a merger with the Tribune Publishing Co.
Tribune shares fell 3.44 percent Monday, or 46 cents, to $12.90.
“Gannett can’t just say go away,” said Ken Doctor, media analyst with consulting firm Newsonomics. “They have to consider it.” Doctor published his analysis of the proposed deal on the Harvard University’s Nieman Lab website with the headline: “Let the 2019 consolidation games begin!”
Gannett had $711 million in revenues and $13.4 million in profits, along with cash of $108 million, for the quarter ended on Sept. 30. At the current stock price, investors value the company at $1.32 billion.
“Frankly, the team leading Gannett has not demonstrated that it’s capable of effectively running this enterprise as a public company,” MNG Enterprises said in a letter distributed publicly Monday. “Gannett shareholders cannot sit by and watch further value erode while the board casts about for a strategy and a leader, especially when there is an opportunity to maximize value right now.”
Gannett said in a statement that it will review the offer.
“You can imagine what the mood is,” said one employee at the Courier-Post on Monday, who did not want to be identified after being told to refer all questions to Gannett’s corporate headquarters in Virginia.
Gannett newspapers include the Record in Bergen County, N.J., the Asbury Park Press, and the Naples Daily News in Florida.
Digital First newspapers include the Denver Post and the Orange County Register.
A deal would consolidate Digital First’s hold on the newspaper market in Philadelphia region as it already controls the newspapers the Mercury in Pottstown, the Times Herald in Norristown, the Daily Local News in West Chester, and the Daily Times in Delaware County.
With Gannett’s News Journal in Wilmington and the Courier-Post in Cherry Hill, Digital First could consolidate its news gathering and printing operations. Digital First “could run the whole group as a large cluster and I would look for deeper cuts,” the Poynter’s Edmonds said.
Digital First earned $160 million in profits on $939 million in revenue in 2017, according to the Nieman Lab at Harvard. The Philadelphia-area newspapers, a major hub for Digital First, contributed $61 million in revenue and $18 million in profits, and led the company in profit margin, with a surprising 30 percent.
The Nieman Lab article was headlined: “Alden Global Capital is making so much money wrecking local journalism it might not want to stop anytime soon.”
In the Philadelphia area, Digital First has closed and sold newspaper buildings, consolidated layout and editing, and cut staff.
At the Times Herald in Norristown, the company has cut staff by 73 percent over six years, to 12 union-covered employees, among them three reporters, the NewsGuild of Greater Philadelphia said in 2018. The Mercury in Pottstown, also a Digital First paper, has seen an 83 percent drop to 19 union-employees over the same period, the union said.
In Delaware County, Digital First sold the Daily Times building and five acres in Upper Darby for $2 million for a CubeSmart storage unit, in 2016. The paper relocated its newsroom and offices to a former CVS and bicycle shop at an intersection in Springfield Township. The guild said in 2018 that 25 union-covered employees are left at the Times, a 78 percent decline from the 112 employees six years ago.