Hedge fund known for 'milking' newspapers takes aim at Gannett

A few dozen newspaper employees staged a protest last May outside the New York City office of their owner - the hedge fund Alden Global Capital. Carrying signs that read "Invest or Sell Now," the journalists chanted, "Hey Hey, Ho Ho, Alden Global's got to go!"

Eight months later, Alden Global isn't gone. In fact, the company wants to expand its newspaper empire even further: On Monday, it made a hostile bid to buy Gannett Co., owner of USA Today and many local newspapers, for $1.36 billion.

A deal would make Digital First Media, an Alden Global subsidiary, by far the largest newspaper owner in America, adding more than 100 titles to its current roster of dailies and weeklies across the country, including The Denver Post and San Jose Mercury News.

While many of the papers are household names to their readers, Alden Global is a little known entity outside the financial world. Founded by Wall Street titan Randall Smith, Alden Global is now led by his 39-year-old protege, Heath Freeman, who keeps a low public profile.

The Daily Beast once called Freeman "the Gordon Gekko of newspapers," a reference to the fictional character in the 1987 film "Wall Street." A story in the Denver magazine 5280 in 2016 described him as having "no real affinity for newspapers," preferring freelancers over full-time staffers to save money, and wondering why The Denver Post needed photographers.

Digital First Media declined to make Freeman or other executives available for an interview.

In a rare interview with ESPN in 2017, Freeman said he's a "huge Duke fan" and once bought the jersey worn by Duke basketball star Christian Laettner during his famous game-winning shot in 1992 for $119,500. Freeman was a walk-on kicker for Duke University's football team.

As the newspaper industry struggled in recent years in the age of the internet and social media, Digital First Media accumulated local titles. It is part of a trend of Wall Street financiers propping up the beleaguered industry.

Digital First Media consolidated operations and cut staff in already thinned-out newsrooms, triggering protests from journalists who say the continued layoffs have undermined their mission to cover their local communities.

Digital First Media says its strategy has been profitable. The adjusted profit margin has increased each of the last three years, surpassing 16 percent in the fiscal year that ended June 30, according to Digital First Media's letter Monday to Gannett's board. That's a wider profit margin than Gannett's, the letter said.

Digital First Media has been more profitable than many of its newspaper peers, thanks in large part to its approach of "continuing to milk its newspapers until they run dry," according to newspaper analyst Ken Doctor.

Alden Global has bet on other industries besides newspapers, and not all have been successful. One of its largest investments is in Fred's Inc., a pharmacy chain based in Memphis. Freeman serves as board chairman. Fred's shares have dropped 86 percent from their peak in December 2016 and the company has been selling assets in an attempted turnaround.

Over the years, Alden's investors have included the California Public Employees' Retirement System and the John S. and James L. Knight Foundation, which issues grants to support journalism, among other things, according to Julie Reynolds, a journalist who has written about Alden Global.

In its letter to the board of McLean, Virginia-based Gannett, Digital First Media said it has a "successful track record of acquiring newspaper businesses and running them in a profitable and sustainable way." Digital First added that it has saved newspapers like Orange County Register and the Boston Herald that "were left for dead and put into bankruptcy by their former owners."

But the ability of Digital First Media's newspapers to cover their communities in the same way with fewer journalists is debatable. Last March, Alden Global bought the Boston Herald out of bankruptcy for almost $12 million and then cut about a quarter of the staff. In April, employees at Alden Global's Denver Post, where the staff has shrunk to less than 100 from about 200 in the past eight years, publicly rebuked the owner after being ordered to cut 30 more jobs.

A Denver Post editorial last April said "if Alden isn't willing to do good journalism here, it should sell The Post to owners who will."