The Washington PostDemocracy Dies in Darkness

As a secretive hedge fund guts its newspapers, journalists are fighting back

In its special editorial section last Sunday decrying newsroom cuts, the Denver Post offered an illustration showing how few of the staff from a 2013 photo remain at the paper today. (RJ Sangosti; illustration by Katie Wood/The Denver Post)

Demoralized by rounds of job cuts, journalists at San Jose’s Mercury News and East Bay Times in Oakland, Calif., took their case to the public last month. At a rally in Oakland, they handed out a fact sheet detailing the “pillaging” of their papers, accompanied by a cartoon of a business executive trying to milk an emaciated cow.

“Dude! I’d produce more milk if you fed me!” read the caption.

The drawing was a barely veiled swipe at the newspapers’ majority owner, a little-known hedge fund called Alden Global Capital.

Headquartered in New York with investment funds domiciled in the tax-lenient Cayman Islands and a clientele that is mostly foreign, Alden has been investing in American newspapers since 2009. Through its majority control of a management company called Digital First Media, Alden owns nearly 100 daily and weekly papers, including such big-city dailies as the Mercury News, the Denver Post and the St. Paul Pioneer Press. The company’s holdings are notably concentrated in California, where it effectively owns every major newspaper around Los Angeles and the San Francisco Bay area with the exception of the Los Angeles Times and the San Francisco Chronicle.

The privately held company — so publicity-shy that its entire website consists of nothing more than its name over a glossy nature photograph — has gained adverse attention of late from an unlikely source: its own newspapers and their journalists. As the cartoon illustrated, they accuse Alden of slashing jobs and sucking profits from the papers while starving them of the resources needed to cover their communities.

In an extraordinary rebellion last Sunday, the Denver Post devoted its editorial pages to series of commentaries about its parent company’s practices. “Denver deserves a newspaper owner who supports its newsroom,” the paper’s lead editorial said. “If Alden isn’t willing to do good journalism here, it should sell the Post to owners who will.”

The San Jose and Oakland papers’ executive editor, Neil Chase, seconded the Denver Post’s rebuke on Tuesday. “Democracy cannot succeed without a healthy, free press,” he wrote in the Mercury News. “So the owners of the press must be committed to its vital role, even if it reduces their profit.”

It’s hardly news that big-city newspapers are hurting. They’ve been under siege for years, brought low by the epochal change from print to digital publishing, the loss of lucrative classified ads and the death of big retailers whose advertising once made publishing a daily paper practically a license to print money. Virtually every American newspaper has cut its staff; the American Society of News Editors stopped keeping track of the bloodletting in 2016 after the number of newsroom personnel had tumbled every year for the previous decade.

But the conventional analysis of newspaper decline has been replaced in Alden’s case by a narrative about “vulture capitalism,” the notion that Alden’s draconian cutbacks are designed to sustain profits without regard for the newspapers’ long-term future.

Two things about the newspapers Alden owns are clear: They’re profitable, and they’ve been hit with far steeper cutbacks than other newspapers.

In a memo to employees last summer, then-chief executive Steve Rossi said the company was “solidly profitable” in fiscal 2017, and that its “performance in advertising revenue has been significantly better than that of our publicly traded industry peers over the past couple of years.”

Critics of Alden’s strategy — including the Denver Post’s editorial board, the Denver Newspaper Guild representing newsroom employees and even a minority shareholder in Digital First Media — say that Alden has systematically sold its newspapers’ real estate and other hard assets, drastically reduced overhead and diverted the papers’ profits into other investments, including its portfolio of Greek bonds.

Neither Alden nor DFM returned requests for comment.

Alden was founded in 2007 by Randall D. Smith, 75, a reclusive Wall Street figure whom the New York Post once called “the grandfather of vulture investing.” The company is housed on the 34th floor of Midtown Manhattan’s “Lipstick Building,” once the base of operations for disgraced investor Bernie Madoff.

The fund makes few disclosures about itself except to private investors. In one such pitch last year, a company brochure described its approach this way: “Alden seeks to capitalize on, among others, distressed situations, reorganizations, bankruptcy proceedings, liquidations, arbitrage opportunities, sovereigns, litigation, claims, liquidity crises, corporate spinoffs, tender offers, restructurings, weak corporate management, failed corporate strategies, operational missteps and inefficiencies, proxy fights, recapitalizations, temporary supply-demand imbalances, non-economic selling pressures and other extraordinary events.”

Among the assets spread among several investment funds, Alden holds stakes in the Pier One retail company and in ParkerVision, a semiconductor company. The company told the Securities and Exchange Commission in a filing on March 29 that it has 19 employees, and that 75 percent of its clients are “non-U.S. persons.” It attributes about $1.19 billion in assets to these non-U.S. persons, whom it does not identify.

Smith, who serves as Alden’s chief of investments, is one of two principal figures at Alden. The other is his protege, Heath Freeman, 37, a former Duke football player and college benefactor who is the company’s president. Outside of Alden’s investment in Digital First, neither Smith nor Freeman have any record of involvement in newspapers or experience in running them.

Smith is so publicity-averse that there are few available photographs of him. Before the cratering of his newspapers attracted attention, his biggest brush with the spotlight was his mansion-buying spree in Palm Beach, Fla. According to press accounts, he has paid $57.2 million for 16 properties there since 2013.

All the while, Digital First has been accelerating the dismantling of its newspapers.

In March, it laid off nearly a third of the Denver Post’s staff, the latest in a series of cuts that will leave the paper with just 66 journalists to cover a metropolitan area with 2.8 million people. That’s about half the size of the industry average for a typical metropolitan daily newspaper, said Rick Edmonds, a media-business analyst for the Poynter Institute, a nonprofit organization that studies the news industry.

Two rounds of layoffs at the company’s five daily newspapers in Southern California, including the Orange County Register, have pared more than a third of the newsrooms’ staffs since last summer. After the most recent cut in January, the blog LA Observed called it “the unraveling of local journalism in Southern California at a level those who live here have never experienced.”

The company’s San Jose, Oakland and Marin County papers have also been hit with multiple reductions, including one that followed just weeks after the East Bay Times won a Pulitzer Prize for its coverage of the deadly Ghost Ship fire last year. The head count in those three Bay Area newsrooms has shrunk since 2011 from a total of 380 journalists to 160 today, Chase, the San Jose editor, said in an interview.

Alden’s alleged practice of diverting resources from its newspapers is detailed in a lawsuit filed last month by another hedge fund, Solus Alternative Asset Management, which owns a minority stake in Digital First Media.

Solus — which is suing Alden to compel it to open up Digital First’s books — says in its complaint that Alden and related funds channeled profits from the newspapers to a series of shaky investments. It cites, among others, an $80 million investment in Homex, a bankrupt Mexican construction company; a $158 million stake in Fred’s Inc., an ailing pharmacy and retail chain; an unspecified investment in Monster Worldwide, the online help-wanted agency; and some $86 million of Greek sovereign bonds. The suit is scheduled to go to trial next month.

Chase understands the imperatives of capitalism and Alden’s effort to profit from a declining business. But he also says something is being lost in the process. “I can’t fault them for not investing in community journalism,” he says. “But if they don’t want to, someone else should. . . . Democracy can’t succeed without a free press.”