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Feeding on Local Newspapers

A "vulture" hedge fund has been sucking the profits out of the East Bay Times and Mercury News for its other ventures. And local journalists want it to stop.

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One of Alden's bigger bets has been investing in Greek debt during the country's financial crisis during the past eight years. To pay back the government bonds that Alden owns, Greece has been forced to slash health care spending, shutter and merge thousands of schools, privatize its water, telecom, and energy systems, and hike taxes on families.

Another big Alden bet was its 2016 purchase of the Fred's chain of retail stores. These kinds of bets can either pay off enormously or hemorrhage incredible sums of money. Fred's saw its price jump from about $10 a share, just before Alden's takeover, up to $20. But now, Fred's stock is worth only $3.20.

Three years ago, Alden's gamble on Greece's sovereign bond debt resulted in a $4.6 million loss in just one month, according to media reports and SEC records.

These wild ups and downs have led DFM workers, including staff at the Times and Merc, to suspect Alden is using their newspapers as a piggybank from which to pull money in order to pay for losing positions elsewhere. Now, according to new lawsuit filed March 5 in Delaware's Court of Chancery — where many corporate disputes are adjudicated — this theory has gained new credence.

Another vulture hedge fund, Solus Alternative Asset Management, which owns a minority stake in Digital First Media alongside Alden, is accusing Alden of improperly and secretly bleeding the newspapers and reinvesting these funds into other "entirely unrelated" enterprises that are teetering on default or bankruptcy and require fresh infusions of cash.

For example, Solus alleges Alden quietly funneled profits from the newspapers to prop up Fred's and its other "illiquid" investments. In the lawsuit, Solus says $158 million in capital was taken out of the newspapers and invested in Fred's. Another investment made by Alden with newspaper revenue was the purchase of a large stake in the jobs listing website Monster.com. According to a 2016 Digital First Media annual report cited in the lawsuit, Alden also took $10 million in newspaper company money and invested it in a commercial real estate investment fund that Alden manages and extracted an additional $86 million to purchase claims on Greece's sovereign debt.

Solus says details about these and possibly other "insider transactions" have been hidden from it, and other investors in Digital First Media, by means of a 2017 amendment to the company's stockholder agreement that Alden executives engineered.

Alden Global Capital officials did not return phone calls seeking comment about the lawsuit. The hedge fund is secretive and doesn't appear to grant media interviews. Its website consists only of a home page with no links and a password login.

What is known about Alden is that it was founded by Randall Smith, a Wall Street insider in his mid-70s who, after he began buying up newspapers, was described by The New York Times in 2010 as so publicity-averse that "he generally avoids speaking to reporters and being photographed." According to the Boston Globe, Smith hasn't given a media interview in three decades. But his hedge fund has made him extremely wealthy. An investigative report in The Nation last year found that Smith bought 16 mansions in Palm Beach, Fla., in 2013 for $57.2 million.

Smith's protégé, Heath Freeman, appears to have taken over more of the day-to-day operations at Alden and Digital First Media, where he's Alden's man on the board. A 37-year-old Duke University graduate, Freeman was hired by Smith to work at his brokerage Smith Management and later co-founded Alden. DFM workers and other close observers of Alden have pointed out that Freeman — much like Smith — buys multimillion-dollar luxury homes in Manhattan while slashing newspaper jobs.

Sensing this all will end poorly for their newspapers, Digital First Media workers are calling on Alden to sell off the publications to local owners. "Alden clearly doesn't care about journalism, at all," Peele said at last week's press conference.

George Kelly, a breaking news reporter with the East Bay Times, said last week that ending Alden's ownership could bring back some stability and a renewed sense of mission to the paper.

Baldassari (a former Express staffer) said she and her colleagues aren't resistant to change — they know print still has to innovate to regain subscriptions and build online traffic. But DFM workers would like to see the profits of the newspapers reinvested into the mission of local reporting.


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