Hedge fund’s takeover of Lee Enterprises ends as investors brace for advertising decline
A top Lee Enterprises shareholder said the newspaper chain faces a difficult financial climate as declining advertising sales may accelerate in a soft economy.
Harris Kupperman, president of Praetorian Capital Management and Lee Enterprises’ second-largest shareholder, based his forecast on falling advertising sales at other newspaper companies.
“New York Times and Gannett both had bad earnings so it probably doesn’t bode well but we’re long-term investors — we’re not really focused on this quarter,” Kupperman said. “Obviously the advertising market is suffering a bit with the economy.”
He said he believes Lee can make up for that loss by selling digital subscriptions.
Kupperman a year ago told Lee’s board of directors to reject a $141 million takeover offer by Alden Global Capital calling it “insufficient and opportunistic.”
But Alden’s bid to buy Lee Enterprises and the 40 newspapers it owns –- St. Louis Post-Dispatch, Omaha World-Herald and Sioux City Journal, among others –- appears to be off the table.
Last week Axios reported Alden Global Capital, a hedge fund with a reputation for diminishing the newspapers it owns, abandoned its pursuit of Lee due to rising interests and a tougher market to finance a purchase.
Alden originally offered to purchase Lee for $24 per share, but as of Tuesday, the Nasdaq value of the newspaper chain’s stock stood at $18 per share.
But according to SEC filings, the hedge fund sold a portion of its stake in the newspaper chain in April after failing to nominate two judges to Alden’s board of directors and losing a lawsuit against Lee for rejecting those nominees.
Alden did not immediately respond to a request for comment on their reported withdrawal.
Based in Davenport, Iowa, Lee describes itself as "a leading provider of local news, information and advertising in 77 US markets and communities."
But Damon Kiesow, Knight Chair of digital editing and producing at the University of Missouri School of Journalism, said he’s not convinced Alden won’t return if Lee’s stock continues to fall.
“Even a short-term delay is good news for Lee. We don’t want to see Alden just plowing its way forward in picking off chains and newspapers at will,” Kiesow said. “I wouldn’t take this as a long-term victory, but if it gives Lee at least a short term to work through the current economic troubles overall that are facing the industry.”
Kiesow said it's hard to tell for certain if Alden will be back to purchase Lee, but with the newspaper chain’s current stock price and an ongoing decline in media company value, it's possible the hedge fund is just biding its time.
“It makes sense for them to hit pause and say, 'Well, maybe if we wait we can bid $16,’” Kiesow said. “Their strategy is to not stop acquiring. That’s how they make money.”
Lee’s stock plummeted to $18 over the summer and has remained around that valuation for most of the year. Meanwhile, the chain laid off a number of employees at newspapers around the country.
In an August update on the company’s financials, Lee stated its newspapers’ total revenue fell from $202 million to $195 million. The newspaper company saw a 9.8% drop in print revenue but saw gains in digital subscriptions.
However, Kiesow said digital gains across the industry are not increasing at the rate at which papers hoped. That, coupled with falling advertising sales, means things may get worse for companies like Lee and Gannett before they get better.
Kiesow said that may make Alden a more attractive owner to stockholders if the current leadership at Lee Enterprises can’t turn things around. Still, he said it's in Lee’s best interest that Alden doesn’t purchase the company.
If Alden were to mount a comeback takeover, Kiesow said it would be bad news for the newspapers Lee owns. He said at almost every newspaper Alden buys, newspapers suffer through layoffs and cost-cutting techniques.
“A struggling Lee is a better owner of these newspapers than an ascendant Alden on any measure you can come up with,” Kiesow said.
“Almost any other owner is better than a vulture fund.”Damon Kiesow, Missouri School of Journalism
Kupperman said he’s keeping his money on Lee Enterprises. He said he stands firm on Lee Enterprises' decision to reject Alden's bid from last November, even as Lee’s stock currently values lower than Alden’s original offer.
“We haven’t sold a share,” Kupperman said.
Kupperman said the company is on the precipice of realizing its digital transformation through gains in digital subscriptions.
“We want to see how the business progresses and we think they have a very good hand to play,” Kupperman said. “The digital transformation done correctly could unlock a tremendous amount of shareholder value. It seems silly to sell right before a transformation sees results.”