March 4, 2021

Three fresh developments point to an increasing pressure on Dr. Patrick Soon-Shiong to sell the Los Angeles Times as well as cash in his 24% stake in Tribune Publishing.

Either that or Soon-Shiong faces an expensive and prolonged reboot. His wife and daughter are now involved in the billionaire’s unsteady guidance of the nation’s largest regional paper, several sources told me. Soon-Shiong has a president and chief operating officer, Chris Argentieri, but the Times lacks either an editor or a publisher to right the ship.

Alden Global Capital, on the march to own more and more of the industry, has already reached a tentative agreement to acquire Tribune Publishing. Alden also appears to be — not a lock — but the most likely to win any bidding contest for the Los Angeles Times, along with The San Diego Union-Tribune and some real estate.

Soon-Shiong has denied that the properties are up for sale.

Should both transactions go through, Alden, notorious for its cost-cutting, could own the nation’s two largest metros — the Times and the Chicago Tribune — as soon as mid-summer. It would also pick up other Tribune papers like the South Florida Sun-Sentinel, The Hartford Courant and the New York Daily News.

Most promising financially for Alden would be control of the Los Angeles Times, a ring of suburban dailies near Los Angeles, The Orange County Register (which it already owns) and The San Diego Union-Tribune (which comes with the Times). That would amount to control of the huge Southern California market, with half the megastate’s 40 million residents.

Three reasons a sale looks increasingly likely

Why are the scales tilting more and more to Soon-Shiong’s liquidating his two ownership positions in the news business?

A tipster pointed me to a $1 billion suit Sorrento Therapeutics brought against Soon-Shiong’s NantPharma in April 2019. The suit alleges that Nant did a “catch-and-kill” when it took a majority stake in a promising drug of Sorrento’s, then stopped its development. Soon-Shiong’s true purpose, the suit charges, was to clear the way for developing a similar drug NanPharma had in the works.

The suit is a matter of record and has been extensively covered by the trade press for the biotech industry. Soon-Shiong’s motion to dismiss was turned down last year. Judge Terry Glenn of the California superior court has ordered mandatory arbitration, currently set for July 22.

I have no way to sort out the merits. Some arbitrations fail to resolve such cases. However even a settlement at a fraction of the damages Sorrento seeks could run to hundreds of millions of dollars. That would leave Soon-Shiong hungry for cash at a time when he is also funding expensive initiatives at his biotech company.

The Los Angeles Times has been without an executive editor since Norman Pearlstine retired at age 78 in December. A search had started for a replacement well before Pearlstine left, and he took the job with the understanding it would be for only a few years and he would help identify a successor.

Now with a pending sale alleged to be in prospect and Alden a likely buyer, at least two candidates have withdrawn from consideration for the executive editor post. They are Janice Min, previously top editor at Us Weekly and later of The Hollywood Reporter; and Anne Kornblut, vice president for global curation at Facebook and earlier in her career part of a Pulitzer Prize-winning investigative team at The Washington Post.

Min confirmed to me that she had pulled out of the running but declined to discuss reasons why. (The withdrawal of her candidacy and Kornblut’s were first reported by the New York Post’s Keith Kelly).

Diversity and other labor issues are churning as well as financial ones. I would expect other candidates with sterling credentials to follow suit. Why step into the Los Angeles Times at a time of turmoil with a possible sale to a hedge fund, another chain or who knows who?

From material in a Wall Street Journal story two weeks ago and three other sources I have spoken with, it appears that Soon-Shiong’s nearly three-year tenure as owner of the Times has been an unhappy one. 

Particularly telling is that Soon-Shiong has never hired a publisher with industry experience. He essentially fulfills that role himself while still tending to entrepreneurial biotech work and trying to invent cancer treatments and now COVID-19 drugs.

Soon-Shiong started his tenure by adding to the news staff and investing in new tech systems and expensive office space upgrades. Early on, though, he began to complain about big losses. Estimates put the tab for the turnaround effort at more than $100 million. That’s on top of the $500 million he had spent to acquire his hometown paper from Tribune Publishing in June 2018. He also assumed $90 million in pension liabilities at the Union-Tribune.

As I wrote last month, Soon-Shiong, with his 24% stake, has clear veto power over final shareholder approval of Alden’s takeover bid for Tribune Publishing. Alden’s initial offer of $14.25 share increased to $17.25 per share on Feb. 16. Valued at $630 million, the deal was accepted in principle by a special committee of the three independent board members of Tribune Publishing. The takeover offer still needs approval by two-thirds of non-Alden stockholders, who control 68% of all shares, compared to Alden’s 32%.

Soon-Shiong could hold out for a higher price indefinitely. He also could hold onto the Los Angeles Times for as long as he wants, trying to turn it around financially and hiring top news and business-side executives for those unfilled posts.

Time is not on his side given the scale of work ahead. Neither erosion of staff morale nor faster growth of fully paid digital subscriptions can be a quick fix. Print circulation continues to plummet.

Given the circumstances, and the time and money a next stage would require, it seems more likely Soon-Shiong will exit, likely swallowing a loss on his $600 million in investments in the Times.

How the Tribune deal is a steal

Switching to news of the Tribune Publishing/Alden deal, an industry analyst who monitors a number of companies and so asked not to be named walked me through publicly disclosed financial information, suggesting that Alden is using its leverage to strike a hard bargain.

Here is the math:

Alden’s offer of $17.25 with 36.6 million shares outstanding works out to a purchase price of about $631 million.

Tribune Publishing has no debt and $100 million in cash. That knocks down the effective price to $531 million.

Tribune Publishing also announced Dec. 16 that it had sold its successful direct-sales business, BestReviews, for $160 million. Cash will be coming in at final closing with details still pending.

That takes the true value of the offer down to $371 million.

Finally, the company told investors in an October “outlook” statement that it forecast profit of $36 to $39 million for the fourth quarter of 2020. The actual result will be reported soon when financial results are disclosed later this month.

Add all that in and the actual value of the Alden offer is in the range of $330 million, about half what it appears.

Despite the uncertainties of 2021, Tribune Publishing, based on 2020 performance, can probably deliver $100 million in EBITDA (earnings before interest, taxes, depreciation and amortization) a year out after the deal closes.

Triple EBITDA or a bit more — Alden’s offer — is the current industry standard. That has been enough to acquire a paper like The Virginian Pilot in Norfolk or The Columbus Dispatch. However, Tribune Publishing is an entirely different weight-class, the industry analyst said — with scale and prestige that should command five or six times EBITDA.

Hence the nearly completed transaction amounts to all but a steal in Alden’s decadelong effort to corner as much of the local regional market as it can.

Alden CEO Heath Freeman and founder Randall Smith have become known as grim reapers as they pull profits from titles like The Denver Post. The hedge fund’s drive to make more and more news acquisitions has spanned a decade including unsuccessful bids for Gannett and McClatchy.

Alden are cost-cutters supreme, but Freeman and Smith clearly also know how to wage a relentless takeover campaign and drive a hard bargain.

This article was updated to clarify that the two candidates who withdrew from consideration for the executive editor position were candidates and not leading candidates. 

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
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