Hedge funds playing havoc in taking media outlets private

lizkat

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It's no secret that hedge funds indulging in the purchase of media outlets do invariably set about cutting costs and trying to make a bigger buck than they had even promised to their investors up front while attempting the deal, but Alden Global Capital (along with some now former board members of Tribune Publishing) may have hit a new low in finalizing the sale of Tribune to the Alden vultures... turns out that the hedge fund didn't even have the $375M cash offered for the purchase, and the Tribune board knew it and also knew that massive debt would immediately be offloaded onto the then largely debt-free Tribune. Not only fucking outrageous but possibly outside the generous margins of laws about such transactions. So far nary a peep from the SEC though. And job cuts have already ensued.


Worst of all to my mind is that the Tribune turned down an offer from another prospective buyer who wanted to keep the Tribune ownership local to better serve its Chicago communities. That offer was declined on grounds the guy hadn't fully demonstrated he could actually come up with the money. But then as it turned out, neither could Alden, only the SEC appears to be turning a blind eye. A number of lawsuits have been settled under seal so it's hard to know what might further ensue in the way of legal action.

The Tribune board’s failure to call out Alden’s self-interest sends a message to hedge funds everywhere that they’re free to bend and even break the rules and norms of corporate ethics when they try to squeeze profits from local newspapers. The price of this failure will be paid in the aftermath of taking Tribune private. Almost immediately, the largely debt-free chain shouldered nearly $300 million in loans for the sole purpose of making it easy for Alden to take control.

As part of the loan package, Alden is charging Tribune a 13% interest rate on $60 million it was forced to borrow from Alden’s other newspaper chain, MNG Enterprises — which screams of usury and self-dealing, even if it is legal. (All of companies involved are incorporated in Delaware, whose usury laws place no interest limit on most loans over $100,000.)

As the deal was completed, Tribune’s directors and officers rewarded themselves with nearly $12 million in payoffs after months of slashing the number of the people who actually produce the company’s core product — reporters, editors, ad salespeople, circulation staff. This month, more than 80 employees accepted the buyouts offered immediately after Alden took control, further draining Tribune’s diminished newsrooms and permanently eliminating those positions.

Given the healthy profits Tribune has generated over the last several quarters, the cuts are there for just one reason: to achieve higher margins for Alden. Randall Smith will get richer while communities served by Tribune are starved of the information they need.

Anyway it sounds like not all the tribulations of Chicago are incurred via the business end of a gun. Apparently you can eventually help lay waste to a city with a bunch of guys who just carry suitcases and nice pens.
 
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