A multi-million dollar proposal could land more than two dozen of the Midwest’s local newspapers in the hands of a New York-based hedge fund known for slashing its papers “to the bone.”
Alden Global Capital revealed a proposal Monday to purchase Lee Enterprise Inc. and its newspapers at $24 a share, casting alarm through the many newsrooms owned by Lee.
Lee counts the St. Louis Post-Dispatch, the Omaha World-Herald and the Sioux City Journal among its holdings in the Midwest.
Alden is a hedge fund that has become one of the largest owners of newspapers across the United States, including The Denver Post and The Mercury News in San Jose, California. Alden has developed a reputation for cost-cutting and downsizing the staff of newspapers it owns.
Alden earlier this year bought Tribune Publishing, whose flagship newspapers include the Chicago Tribune and The Baltimore Sun.
In a letter to Lee’s board of directors, Alden said it was interested in Lee as part of its commitment to the news industry in the long term.
An Alden spokesperson did not respond to a request for comment. In earlier published accounts of Alden’s business, managing director Heath Freeman has said his hedge fund is among the very few outfits still willing to buy newspapers when others would have left them for dead.
But Alden’s reputation in the newspaper industry, which has broadly faced headwinds in the last 20 years, is less glowing.
For Omaha World-Herald News Guild president Todd Cooper, the news of Alden’s offer was devastating.
“They (Alden) hide in the shadows but they’re the worst of newspaper owners,” he said. “They care about nothing but the bottom line and pounce on this notion that newspapers are dead or a dead medium — and that's just not true.”
Cooper, who has worked as a courts reporter at the Omaha World-Herald for more than 24 years, said the paper’s union fears that if Alden buys Lee, the Herald and many of Nebraska’s other newspapers will be “stripped down” by staff cuts.
“The fewer reporters you have, the fewer reporters you have to watch out for government waste and wrongdoing,” Cooper said. “It becomes this cycle and they lead newspapers to circle the drain until you’re only covering the bare minimum.”
Lee Enterprises bought the Herald in 2020 from Berkshire Hathaway, a conglomerate once run by Warren Buffett, and has been managed by Lee for about 18 months prior to the sale.
Cooper said Alden would control the majority of newspapers in Nebraska if it buys Lee.
“It is not hyperbole to say that parts of democracy die when a hedge fund is allowed to run local news into the ground, whether it be a newspaper or a TV station,” he said. “Trust in government erodes as our watchdog function gets stripped down.”
Jeff Gordon, president of the union that represents staffers at the St. Louis Post-Dispatch, echoed Cooper’s sentiments.
Gordon, a sports columnist at the Post-Dispatch, said the union is working to convince Lee to not sell to Alden.
“Lee has run its properties pretty tightly to say the least, but Alden will take it to the next level,” he said. “Alden does not look at these properties in any sort of overly long-term view. They just want to get some money out of it and move on.”
Kyle Munson questions whether more consolidation provides an answer to that problem. Munson is a former columnist with The Des Moines Register and the current board president of the Western Iowa Journalism Foundation, a nonprofit that supports community newspapers.
“I just think we have yet to see where scale, for these local communities, really makes up the difference unless you change the economic foundations of the news operation,” Munson said.
Lee has already cut down on the number of reporters at its papers, Munson said, and he worries the trend would continue or worsen under Alden.
“I mean, there are always some assets yet to be drained out of any particular news operation until the lights go off,” he said.
A 'disaster for democracy'
Kathy Kiely, the Lee Hills Chair of free-press studies at the University of Missouri School of Journalism, called Alden’s proposed purchase of Lee a “disaster for democracy.”
“This sort of hedge fund behavior is really putting greed and self-dealing above democracy,” Kiely said of Alden’s proposal. “It’s a dagger to the heart of democracy.”
Kiely called Alden a “vulture fund” and said the hedge fund cuts its newspapers “to the bone.” She used the Chicago Tribune as an example of the damage she said Alden can do to a paper. A recent Poynter article estimated more than 10% of the paper’s staff was cut within six weeks of Alden’s purchase of the paper.
She said the practice of hedge funds buying newspapers started more than a decade ago when newspapers had many assets like buildings, vehicles for deliveries and more.
However, Kiely said the motive behind hedge funds like Alden’s attraction to local newspapers has become less and less clear as those assets have disappeared or been sold off.
The news of a possible purchase is particularly bad for the Midwest region, Kiely said, where Lee Enterprises owns 24 papers in Iowa, Missouri and Nebraska.
She said news deserts — places that have no local news sources — have become rampant throughout the region, a problem she predicts will worsen if Alden buys Lee.
“These newspapers are really important news engineers in this region and the idea that a hedge fund that has a record of decimating papers wants to come in and take over more — that should make everyone shudder,” Kiely said. “I wish Alden would prove me wrong, but so far their track record has been remarkably consistent.”
Lee Enterprises is based in Davenport, Iowa. The company traces its origins back to 1890. Its website points out that Sam Clemens, better known as Mark Twain, wrote for the Muscatine Journal, which Lee Enterprises still owns.
Lee Enterprises bought the Post-Dispatch in 2005 from Pulitzer Inc. for $1.46 billion. Cannell Capital, a hedge fund that owns nearly 7% of Lee Enterprises, described the 2005 purchase as a “near-fatal acquisition” and noted the newspaper owner’s stock has dropped 93% since then.
That description was contained in an Aug. 31 letter that Cannell Capital managing member J. Carlo Cannell sent to Lee Enterprises board chairwoman Mary Junck. The letter from Cannell was sharply critical of Lee Enterprises, commenting that the company “may have the best local content,” but that its legacy costs were too high and its user interface was dated.
Cannell’s letter took the company’s board to task for not adapting quickly enough to a digital media environment and claimed the company could reach a much higher share price under a different board of directors.
Cannell also made a prediction in that letter from August about what could happen if Lee Enterprises did not take steps to increase its value.
“Regardless, the valuation gap is so great that if the stock does not appreciate materially then CC forecasts that a third party will move — collaboratively or rapaciously — to transfer the value from the current owners for their own exclusive benefit,” Cannell wrote.
A statement from Lee Enterprises says it will carefully review Alden’s proposal to determine the course of action it believes is in the best interests of the company and its shareholders.
The Midwest Newsroom's Steve Vockrodt and IPR's Grant Gerlock contributed their reporting to this article.