July 27, 2011

Even in the close-mouthed world of hedge fund investment, Randall Smith, the principal of Alden Global Capital, gives new meaning to the euphemism “low profile.”

Smith’s Alden bought out fellow hedge funds earlier this month and now owns Journal-Register Co. outright. It has gained the largest share of MediaNews, the second largest U.S. newspaper company by circulation. Alden also owns the largest share of Freedom Communications, whose Orange County Register and other newspapers are up for sale (with MediaNews a potential buyer). It is in the ownership group that bought Philadelphia Media Network last year and the group likely to own Tribune Co. once it emerges from bankruptcy.

Housed in the same Third Avenue Manhattan offices as Smith Management, Alden is a relatively new fund, organized in 2007. Newspapers and other media companies are a major part of its portfolio but it has also bought shares of financial companies like Citigroup and the debt of third-world countries.

So who is Randall Smith and what does he want with all these newspapers? If he has given an interview since the mid-1980’s, I couldn’t find it. Nor could I locate a published photo of Smith or his exact age (roughly 68, I think). Unlike Angelo, Gordon, an earlier leader in distressed newspaper investments, Alden allows website access only to customers.

The man behind a rising tide of private equity newspaper company investments and takeovers has kept from the public eye even the barest information about himself and his companies.

However, as an investment banker with 45 years experience and a pioneer of so-called vulture investing, Smith has left a few tracks.

A 1987 Time profile reported that he is a graduate of Cornell University with a Wharton MBA, who started his career with Bear Stearns in 1967. (Other information says he was at Bear Stearns beginning in 1974.) He started his own company, the first of many, in 1985.

Randall Smith has been an investor in news media at least once before, when his younger brother Russ and partners launched the New York Press in 1988. The Press offered tough competition to the Village Voice, with free distribution, while the Voice was a paid publication. (It switched to free in 1996.)

When the rivalry was at its peak in 1999, Voice writer Cynthia Cotts produced an acid profile of the brothers, headlined “Vulture Press.” She concluded by quoting an acquaintance saying, ” ‘Randy is so rich he’s the kind of guy who divests himself every couple of years,’ so he doesn’t make the lists of the world’s richest people.”

Russ Smith, a conservative libertarian, for 20 years wrote a weekly column, “The Mugger,” which often ran to more than 10,000 words. So in the Smith family, there is one brother who won’t stop talking and one who is publicly mute.

(Neither Smith returned calls asking for comment.)

Under the circumstances, one can only infer what Alden likes about the news industry and what next steps in its strategy may be.

I found a hint in the April 2010 issue of Alden’s Monthly Update to clients, which found its way onto the Web. A commentary explains the importance of “industry themes” to the Alden portfolio “because individual companies in the same industry usually face similar economic drivers.”

When investor and analyst opinion goes sour on an industry because of poor financial performance, the commentary continues, “this bias can create significant buying opportunities, and it is one that we look for in industries that are on our distressed radar.”

This investment philosophy helps explain why Alden also owns a $143 million position in Gannett, smaller stakes in A.H. Belo, McClatchy, Media General and Journal Communications. And it has taken positions in Sinclair Broadcasting, LIN TV, Nextstar, and Canadian company, Postmedia.

It aimed last year to take private Emmis Communications, a radio company, but the deal collapsed when Alden pulled out, leading to suits and countersuits.

I spoke by phone this week with Dean Singleton, longtime chairman and CEO of MediaNews, whose company was partially taken over by Alden in January 2011. Singleton remains there, as a new board of directors searches for a new CEO; when they find one, Singleton will then become Executive Chairman advising the company on strategy.

Singleton said that he has “enormous respect” for Smith and others at Alden. “It’s very clear that Alden has faith in the future of the business and so do I. They believe that at today’s valuations, newspapers are a good long-term investment.”

Singleton declined to comment further on Alden’s principals or whether the fund would try to consolidate its newspaper holdings. But Singleton, who built his company over decades with acquisitions, said his own view is that further “consolidation will play a big role” in the industry’s recovery and way forward.

Any time you put together two companies, there are management efficiencies that add value, he said, “and if they are in the same geographical  area, there is an opportunity to share operational expenses and create value that way.”

Indeed, MediaNews has been the first and biggest proponent of newspaper clustering. Most recently it has been among the first to have one publisher or editor oversee several newspapers, to treat groups of newspapers as a single entity for totaling audited circulation, and to create merged or outsourced copy editing and design desks.

The reader in Contra Costa, Calif., Singleton told me, doesn’t really care where the paper is printed, who delivers it at 5 a.m. or “whether the ad production is done in Contra Costa or India.”

Singleton has also been comfortable through the years partnering with Gannett and other companies, in one instance running several papers for Hearst, which also made a big investment in MediaNews.

So I agree with Martin Langeveld and other analysts who speculate that MediaNews is the logical launch pad if Alden moves to consolidate its newspaper holdings.

That is an “if.” Alden might choose not to consolidate and simply sit on investments it believes will appreciate.

My wild guess: Watch for the MediaNews CEO search to end with Journal Register CEO John Paton (whose experience includes investment banking). Paton has transformed Journal Register to digital first, and that aligns with MediaNews’ likely direction. Journal Register and Media News can be merged — perhaps with Freedom too, if the Alden guys can figure out a fair price to pay themselves.

Randall Smith may feel fresh pressure to get just a little transparent and go public with a charm offensive as his company becomes a bigger ownership force.

Keep in mind, though, that the distressed investment specialists have a stomach for risky positions most investors won’t go near. Even the most experienced specialists don’t succeed with every pick. Alden, for instance, showed an appreciation of more than 187 percent one year and 3 percent the next, the New York Times reported last fall, as its play on distressed financial institutions fizzled.

So, flattering as Alden’s courtship of the industry has been to date and likely as it is to continue, newspapers could get dropped in a heartbeat, as did Emmis, if fundamentals take another dive. Randall Smith knows the game plan — but he isn’t saying.

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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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