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Hedge Funds Duel in Bankruptcy Court Over McClatchy Newspapers

A battle of the hedge funds is brewing in the bankruptcy auction of the McClatchy Company, one of the nation’s largest and most decorated newspaper chains, pitting Chatham Asset Management and Brigade Capital Management, both debt holders in the chain, against a newcomer to the proceedings, Alden Global Capital.

Chatham and Brigade seemed to have an advantage going into the planned court-supervised sale of McClatchy. In April, McClatchy said it had received an offer worth more than $300 million from the two firms, which had taken on much of McClatchy’s debt in a Chapter 11 restructuring. The two hedge funds planned to use that debt as part of the bid, which would keep the chain, with 30 newsrooms across the country, intact.

Alden, a New York hedge fund that has become a force in the newspaper business, tried to disrupt the Chatham-Brigade proposal on Wednesday by filing an emergency motion in a U.S. Bankruptcy Court. Alden asked Judge Michael E. Wiles to stop any attempt to buy McClatchy through a credit bid, a transaction that would allow Chatham and Brigade to use the company debt they had assumed toward the purchase price.

Alden’s maneuver suggested that it, too, had an interest in acquiring McClatchy, a 163-year-old chain that fell on hard times not long after its $4.5 billion purchase in 2006 of a much larger rival, Knight Ridder.

At a remote hearing on Thursday, Alden’s interest was confirmed by a lawyer for the hedge fund, Lisa G. Beckerman of Akin Gump Strauss Hauer & Feld. She said Alden was prepared to “top” the previous bid, but argued that Chatham and Brigade would have an unfair advantage if they were allowed to make the debt they had accrued part of their offer. Judge Wiles denied Alden’s motion, permitting Chatham and Brigade to go ahead with their plan.

The court also scheduled a new date for the start of the auction process, setting it for Friday. It had previously been scheduled to start on Wednesday.

Chatham is not a newcomer to the newspaper industry. It is the principal owner of American Media, which operates the National Enquirer supermarket tabloid, and a major investor in Postmedia, the publisher of Canadian newspapers including The National Post, The Montreal Gazette and The Ottawa Citizen.

A lawyer identified as a representative of the Knight Foundation listened in on the hearing as a nonparticipant. The Knight Foundation is a journalism nonprofit organization with an endowment of more than $2 billion. It originated with the family whose newspaper chain merged with another to form Knight Ridder, the company bought by McClatchy 14 years ago.

McClatchy, a business that has been in the same family since 1857, with the founding of the forerunner of The Sacramento Bee, is the publisher of The Miami Herald, The Charlotte Observer and The Kansas City Star, among other major dailies. A consistent winner of top journalism prizes, it says it is the second-largest newspaper chain in the United States.

The Alden-owned MediaNews Group has drastically cut costs at newspapers it manages. In 2018, staff members at The Denver Post, a MediaNews Group daily, openly rebelled, publishing a special section filled with articles critical of ownership. “If Alden isn’t willing to do good journalism here,” The Post’s editorial board wrote in the lead editorial, “it should sell The Post to owners who will.”

Alden owns 32 percent of Tribune Publishing, the chain that operates The Chicago Tribune, The Baltimore Sun and newspapers in nine other major metropolitan areas in the United States. Last week the hedge fund increased its influence on Tribune Publishing when it gained a third seat on its seven-member board. Alden also has an interest in another newspaper chain, Lee Enterprises, and its MediaNews Group controls roughly 200 publications.

From 2004 to 2019, roughly half of all newspaper jobs in the United States were eliminated as the cumulative weekday circulation of print papers fell to 73 million from 122 million, according to a University of North Carolina study.

At the same time, advertising revenue fell sharply as readers gave up print newspapers, a longtime home of lucrative retail ads and classified notices, in favor of digital devices. Google and Facebook came to dominate the online ad market, hampering publishers’ attempts to generate the necessary revenue from digital ads.

Wall Street ownership of newspapers has become common, and Alden helped drive that trend since the Great Recession, when it started grabbing stakes in distressed news media companies.

Alden’s emergency motion was first reported by McClatchy DC, a news site staffed by McClatchy journalists in Washington.

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Hedge Fund’s Run at Tribune Publishing Ends, for Now, With a New Board Seat

Alden Global Capital seemed poised in recent days to take control of Tribune Publishing, the owner of The Chicago Tribune, The Baltimore Sun, The New York Daily News and many other dailies.

After a closed-door session on Wednesday, the New York investment firm ended up with a board seat for one of its founders, Randall D. Smith — and an extension of an agreement, struck last year, that allows it to pursue a majority stake in the Tribune chain next year.

Alden’s designs on Tribune Publishing, a publicly traded company, became clear in November when it revealed that it had become its largest shareholder, with a 32 percent stake. The news led to an outcry from reporters, many of whom have denounced the hedge fund’s habit of slashing newsroom costs at papers it owns through a subsidiary, MediaNews Group.

After this week’s negotiations, Alden agreed not to pursue a significantly larger stake in Tribune Publishing until after the newspaper company’s next annual shareholder meeting, which is scheduled to take place no later than June 15, according to a public filing Thursday.

“Tribune Publishing will continue to focus on our long-term strategy to drive digital growth and invest in high-quality content while reducing legacy costs,” said Philip G. Franklin, the chair of Tribune’s board and not an Alden member, in a statement.

An Alden spokesman did not reply to a request for comment Thursday.

Mr. Smith is the third executive from Alden or affiliated companies to join the Tribune Publishing board, which grew to seven seats, from six. The other Alden representatives are Dana Goldsmith Needleman and Christopher Minnetian.

Few newspapers have been immune to cost cuts since readers started getting their news from digital devices rather than printed pages. In that time, Alden has been aggressive in laying off newsroom employees in an effort to wring profits out of MediaNews Group, which operates roughly 200 publications.

Two years ago, journalists at The Denver Post, a MediaNews Group paper, blasted Alden in a special opinion section. “If Alden isn’t willing to do good journalism here, it should sell The Post to owners who will,” the Post’s editorial board wrote in the lead editorial.

Journalists at Tribune Publishing papers believed they saw fresh evidence of Alden’s cut-to-the-bone style when the company offered buyouts in January.

Then, in February, there was turnover: Terry Jimenez, the Tribune Publishing chief financial officer, replaced Timothy P. Knight as the company’s chief executive.

Weeks later, Mr. Jimenez announced a change in leadership at The Chicago Tribune: Bruce Dold, the publisher and editor in chief, was replaced by Colin McMahon, who had been Tribune Publishing’s chief content officer. Mr. Dold, a winner of a Pulitzer Prize, had worked at the paper for 42 years.

Tribune Publishing also imposed cuts when the coronavirus pandemic hit, including three weeks of furloughs for some employees and permanent pay cuts for others.

As Alden became a significant part of the company, the NewsGuild union teamed with several Baltimore-area benefactors to push for local ownership of The Sun. Matthew D. Gallagher, the chief executive of the Goldseker Foundation in Baltimore, said his group had been “in contact” with Tribune Publishing, but he declined to comment further.

Journalists have also sought new ownership for other Tribune Publishing papers. Among them, a pair of Chicago Tribune investigative reporters lobbied wealthy Chicagoans.

Those pushing for Tribune Publishing to sell its papers to local owners have found an ally in Mason Slaine, an investor who bought a roughly 7 percent stake of the company this spring.

“The newspapers should really be owned by the local communities,” Mr. Slaine, a former chief executive of Thomson Financial, said in an interview last month.

Mr. Slaine, who lives in Boca Raton, Fla., added that he had some interest in buying The Sun Sentinel of South Florida, a Tribune Publishing paper.

In 2018, Dr. Patrick Soon-Shiong, a medical entrepreneur, bought The Los Angeles Times, The San Diego Union-Tribune and other California papers from Tribune Publishing, then known as Tronc, for $500 million. Dr. Soon-Shiong is the second-largest shareholder in Tribune Publishing, with about a quarter of its shares.

Wall Street ownership of newspapers has become common, and Alden helped drive that trend since the Great Recession, when it started grabbing stakes in distressed media companies.

Last year, in a deal financed by the private equity firm Apollo Global Management, the newspaper chain Gannett was acquired by the parent company of GateHouse Media to form a giant that publishes more than 250 dailies. The resulting company, called Gannett, is controlled by another private equity fund, Fortress Investment Group, which is owned by the Japanese conglomerate SoftBank.

McClatchy, another chain, is likely to emerge from the bankruptcy it declared this year into the hands of its largest bondholder, the hedge fund Chatham Asset Management. Alden itself recently disclosed a significant stake in the newspaper chain Lee Enterprises.

Tribune Publishing fell into bankruptcy a decade ago, shortly after it was bought by the Chicago billionaire Sam Zell, who presided over a leadership culture that resembled a frat house.

In 2016, the fund Merrick Ventures became the largest shareholder in the company. Its chairman, Michael W. Ferro Jr., oversaw extensive job cuts before stepping down in 2018, after two women accused him of unwanted sexual advances. Alden then acquired Mr. Ferro’s shares.