How Alden Global Capital Will Make Money Owning Tribune Publishing
Alden began deploying his tactics as soon as he became the company’s largest shareholder at the end of 2019. Since then, he has cut costs enough to generate profit and positive cash flow.
Revenue fell 15.9% in the first quarter of 2021 compared to the previous year period, due to lower advertising and subscription sales. But expenses fell more than twice as quickly to 39.2 percent, as Alden slashed employees, newsprint and ink costs, delivery costs and more. As a result, Tribune Publishing posted a profit of $ 8.4 million in the first quarter, down from a loss of $ 65.1 million a year earlier. Cash flow from operations also turned positive, exceeding $ 22 million.
Profits and positive cash flow allow Alden to start reaping gains through dividends and other possible payments from Tribune Publishing. Alden’s financial challenge is to cut costs fast enough to outpace the continued declines in revenue. This becomes more difficult as reductions in staff in the newsroom decrease the size and quality of Tribune newspapers, reducing their value to readers.
“How are they going to market to the public that this is a news organization that always deserves to be financially supported? It is always worth subscribing to,” asks Tim Franklin, Senior Associate Dean at the Medill School of Journalism at Northwestern University. “If there is no longer a value proposition for the journalism produced in the Tribune, then people are not going to buy it.”
As subscribers turn away, the decline in revenues accelerates, making greater cost reductions necessary to maintain profitability. The large debt that Alden used to finance the acquisition of Tribune Publishing is adding to the pressure.
The company is forced to repay two loans: one for $ 218 million, which matures in five years and priced at an undisclosed prime rate plus 0.5%, and another for $ 60 million at 13%. The second loan is from Alden’s other news group, MNG Enterprises, and matures in six years. Interest is about $ 8 million per year and is payable in cash for 6% and “in kind” for 7%, according to Securities & Exchange Commission documents.
If interest on the largest loan is at a conservative 4-5% level, Tribune Publishing will have to pay about $ 14 million in annual debt service.
To speed up savings, Alden once again targeted Tribune Publishing’s payroll. Two days after Alden’s May 24 acquisition of shares in Tribune Publishing that it did not already own, full-time editorial staff at the company’s newspapers were offered a buyout.
It’s a familiar tactic. In 12 newspapers it owns, including the Denver Post, St. Paul Pioneer Press and San Jose Mercury News, Alden has cut its unionized staff by 76 percent, according to data from the Chicago Tribune Guild. The Chicago Tribune newsroom has undergone two rounds of buyouts and management reshuffles since late 2019. A cut of this magnitude would leave the Chicago Tribune with about 30 union-represented newsroom employees to cover a metropolis of 9. , 5 million inhabitants.
Last year, Tribune Publishing cut its workforce by more than 800, or 30.4%, according to regulatory documents. Employee compensation has been cut by $ 58 million, or 16 percent. 86 more positions were cut in the first quarter and compensation costs fell 36% to $ 62 million.
As recently as 2018, Tribune Publishing’s main revenue driver was advertising. That shifted as the pandemic hammered advertising sales. The company said in its annual statements that 47.3% of revenue came from broadcasting and 35% from advertising.
The company hopes to make up for the loss of advertising dollars by generating more revenue from subscribers, especially digital players. But total subscription revenue is also down, as the fall in print circulation dollars outpaces the rise in online subscription sales.
There is a silver lining in the decline in print circulation. Selling fewer physical newspapers can save money on delivery and printing costs, Franklin says. This is one of the many reasons newspapers across the country are emphasizing digital subscriptions and even electronic editions of newspapers rather than print versions.
Alden could also cut costs by posting articles less frequently, Franklin says. It is not yet a decision by Alden in any Tribune Publishing newspaper, but it is a larger trend in the industry.
Asset sales could generate more cash for Alden. Other Alden-controlled newspapers have sold real estate, but Tribune Publishing does not own much. The company sold the BestReviews website for $ 20.5 million in 2020.
This leaves individual newspapers as potential divestiture candidates. When the company’s purchase agreement was first revealed, Maryland hotel mogul Stewart Bainum was on the verge of buying the Baltimore Sun and other area newspapers from Alden . That deal ultimately fell through, as Bainum pursued its own offer to buy the entire company. Throughout this process, other shareholders and parties have expressed an interest in purchasing certain publications. Shareholder Mason Slaine was interested, for example, in publications from Florida.
No transfer agreement was reached, leaving Alden’s endgame for Tribune Publishing a mystery. Traditionally, private equity firms buy a business, increase their profits, then sell it for a profit or cash out on an initial public offering. Sometimes portfolio companies are split and business units are matched with other investments. Others, however, end up in bankruptcy.
Some Alden-owned companies have gone bankrupt, according to data from transaction tracker PitchBook. These include Payless ShoeSource and the Memphis-based retail business and Fred’s drugstore chain.
Alden’s tactics at Tribune Publishing could leave the company with little value to potential buyers, says Professor Erik Gordon of the Ross School of Business at the University of Michigan.
“I don’t see how you can make a profit on… selling a business you’ve destroyed,” he says. “Who is going to buy them? “
The alternative looks grim, says Jim Friedlich, executive director of the Lenfest Institute for Journalism, nonprofit owner of the Philadelphia Inquirer.
“It’s hard to guess a happy endgame for these Alden-owned newspapers,” says Friedlich, who advised Bainum on his offer. “There will come a time when there will be nothing left to cut except to turn off the lights.”