New Media shareholders share UMG’s concerns about GateHouse management

May 31, 2017 by

Wes Edens

GateHouse Media’s buying and slashing spree has led to the wholesale deterioration of once-great newspaper properties.

The United Media Guild sees this damage daily while representing members at the Peoria Journal Star, State Journal-Register of Springfield, Rockford Register Star, Pekin Daily Times and Freeport Journal Standard.

Major shareholders in GateHouse’s parent company, New Media Investment Group, are taking note.  They voted overwhelmingly in favor of the UMG’s non-binding proposal for an annual election of directors instead of staggered elections.

Shareholders also withheld votes for New Media Investment Group board chairman Wes Edens by a 2-to-1 margin, signaling considerable unrest.

UMG president Jeff Gordon presented the good governance proposal at New Media’s annual shareholders meeting in suburban Rochester, N.Y., May 25. UMG business representative Shannon Duffy and NewsGuild-CWA sector representative Tammy Turnbull also attended the meeting.

Earlier in the month NewsGuild-CWA supported this proposal with letters to top New Media shareholders, seeking to create a more responsive board.

In its letter to shareholders, TNG-CWA noted that: “At a time when newspaper publishers and employees must work together to promote the value of real news and find revenue solutions in a distressed industry, New Media has demoralized its workforce with an eternal wage freeze (up to a decade at some properties), constant layoffs and a more hostile negotiating stance at NewsGuild-represented units. In our opinion, cost-cutting through headcount reductions has reached the point of negative returns.”

While the cuts maximized cash flow to pay stock dividends and fund further acquisitions, it also undermined the whole enterprise. Circulation is down, print advertising is way down and the gains in digital advertising and the Propel Marketing initiative haven’t offset that decline.

Not only has the company lost great journalists to layoffs and voluntary departures, it has also churned salespersons, advertising managers, publishers, regional executives and even national-level managers.

Against the backdrop, UMG’s proposal won in a landslide, 35 million to 7.2 million. Edens, a principal in Fortress Investment Group, received 14.3 million votes “for” and had 28 million votes withheld.

New Media’s buy-and-slash newspaper strategy has worked great for Edens and Fortress, the company’s external manager. Fortress has collected more than $60 million in management fees and incentive compensation since launching and expanding the company from the ashes of GateHouse Media’s $1.2 billion bankruptcy.

The strategy has been less great for shareholders, producing healthy dividends but driving down the stock price. After topping $25 per share back in March, 2015, New Media stock was trading at about $13 on May 31.

Analysts began souring on New Media stock last year, changing “buy” ratings to “hold” or “sell”. Earlier in May, New Media’s board of directors authorized a $100 million stock buyback during the next year to shore up the stock’s price.

Hence the shareholder interest in creating a board of directors more aligned with their interests rather than the interests of Fortress. Although the UMG proposal was non-binding, the Council of Institutional Investors notes that 75 percent of majority-supported proposals are implemented withing three years.

And while Edens remains the board chairman, the Council of Institutional Investors believes directors failing to receive a majority vote in uncontested elections should resign.

“CII’s corporate governance policies state that in uncontested elections, directors should be elected by majority vote; directors who fail to receive a majority support should step down from the board and not be reappointed,” it notes on its website.

Edens did not attend the shareholders meeting. Gordon, Duffy and Turnbull engaged New Media CEO Michael Reed in an informal discussion after the brief shareholders meeting. Reed listened to the Guild’s concerns about the state of his newsrooms and expressed his own concerns about the negative impact of the Guild’s community and corporate campaigns.

Almost every Guild contract at GateHouse-operated newspapers is currently open with little to no progress being made in negotiations. As a result, TNG-CWA locals in that fight have joined forces in a multi-faceted initiative against the company that includes joint mobilization, joint bargaining strategies, community campaigns, organizing efforts at unrepresented newspapers and a broader corporate campaign with shareholder outreach.

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Wall Street sours on New Media Investment Group as its asset-stripping accelerates

May 15, 2017 by

So why did New Media Investment Group trade for $12.61 per Monday, down from nearly $20 per share last July?

Investors are starting to share the dim long-term assessment the United Media Guild offered back in 2014, after the this company rose from the ashes of GateHouse Media’s billion-dollar bankruptcy. Fortress Investment Group launched New Media Investment Group as a exercise certain to pay Wes Edens and Co. handsomely for several years while bleeding as much cash as possible from struggling newspaper operations.

That scheme has sped the decline of newspapers across the country, including the UMG-represented Peoria Journal Star, State Journal-Register, Rockford Register Star and Pekin Daily Times in Illinois.

Fortress doubled down on its GateHouse Media bet, raising capital to re-launch the company under the New Media Investment Group umbrella. While Fortress doesn’t actually own much New Media stock, it operates as its external manager and collects huge fees to do so.

(It has run this gambit successfully in other industries. That success is just one reason why  Japan’s SoftBank opted to purchase Fortress for $3.3 billion.)

By committing to a $1 billion spending spree, New Media buys properties from bailing owners, then its GateHouse Media management team strips them down to maximize cash flow.

New Media uses this cash flow for two primary purposes: paying generous dividends to attract institutional investors and to fund more acquisitions. By getting bigger and bigger, New Media pays Fortress greater and greater managerial fees.

The flurry of acquisitions (and the lucrative resale of the Las Vegas Review Journal under dubious circumstances) allowed the company to build revenues and give the appearance of growth — even as revenues at individual properties declined precipitously.

To distract investors from plunging print advertising revenues, New Media hyped the growth of Propel Marketing and digital advertising. Propel does deliver growth, but not nearly enough offset the print decline. Digital advertising growth stalled as the more consumer traffic shifted to harder-to-monetize smart phone applications. The GateHouse Live events business offers growth, but at a very small scale.

Still, New Media CEO Michael Reed insisted organic growth would come some day. That promise, along was hefty dividends, was supposed to drive up the price of its stock.

And here is the harsh reality of New Media Investment Group:

By gutting the news-gathering operations at its properties, the company has greatly diminished its core product. While New Media touts its properties as a “trusted news source” with long community standing and limited competition, readers and advertisers recognize the precipitous decline in quality.

With paid circulation plunging across the chain, New Media’s strategy is to charge more and more for less and less real content. Circulation revenue accounts for more than one-third of the company’s revenue. When will that bubble finally burst?

Reed keeps promising organic growth, but then keeps pushing the timetable further down the road.  Many experts on media stock began souring on New Media last year, shifting their “buy” tag to “neutral” or even a “sell” recommendation.

At a time when all newspaper companies must work with its employees to promote their products and the craft of journalism — which is under assault from every angle — New Media has taken an hard-line stance against members of The NewsGuild. This has led to:

  • Increased worker mobilization within GateHouse-managed newspapers.
  • Joint union mobilization across various newspapers in the chain, such as the recent joint action with Digital First Media workers.
  • Unionization of previously non-represented properties — including two in Florida, which was previously unheard of.
  • Several successful unfair labor practice charges with the National Labor Relations Board, resulting in pricey legal battles.
  • Guild outreach to readers and advertisers through well-publicized community campaigns in key markets, encouraging consumers to demand more from their newspaper’s owner.
  • Guild outreach to investors and analysts as part of its expanding corporate campaign to highlight the street-level impact of managerial strategy.

All that has put even more stress on New Media’s business, with no end in sight.

Writing for the Seeking Alpha site, Vince Martin offered this overview:

The story at New Media (NYSE:NEWM) is one of the strangers in the markets. First, it’s a roll-up of local newspapers, a seemingly odd target, given the obviously secular decline in the space. NEWM pays a double-digit dividend, for reasons that aren’t entirely clear: after distributing nearly $100 million over seven quarters, while talking up extensive acquisition opportunities in the space, the company executed a $120 million stock offering in November. This came at the same time NEWM management was talking up its undervalued stock – even citing a $25 price target . . . .

And, again, it’s a rollup of local newspapers and using a strategy that its predecessor GateHouse Media rode straight into Chapter 11. The irony is that an investor unfamiliar with the NEWM story might assume that it was essentially a ‘cigar butt’ type of play: local newspapers could add value if they’re a) acquired cheap enough and b) can contribute enough cash flow (either through existing business and/or synergies/cost cuts) to repay the acquisition cost in a matter of years. But New Media’s version of the story is that organic revenue trends will improve, as digital revenue growth offsets ever-shrinking legacy print business.

I’m highly skeptical on that point, and Q1 results last month support that skepticism.

The United Media Guild has been skeptical for years. Now Wall Street is finally catching on.

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