It appears to me that the McClatchy Co., owner of The Star and 28 other daily newspapers, is not long for this world.
One hedge fund, Chatham Asset Management, has been digging its claws into McClatchy for a few years — becoming its largest creditor and buying up at least 20 percent of the company’s stock — and on Wednesday another big stockholder filed notice demanding that McClatchy sell all its “non core assets,” including real estate.
That company, Bluestone Financial LTD, based in the British Virgin Islands, has increased its ownership stake in McClatchy from 5.16 percent a year ago to 8.82 percent as of Wednesday.
In a filing with the Securities and Exchange Commission, Bluestone said it believed McClatchy stock shares “represent an attractive investment opportunity.”
The filing went on to say…
“The McClatchy company should improve its balance sheet by selling all non core assets including real estate and its 49.5% stake in The Seattle Times Company. While right sizing its workforce The McClatchy Company should consider right sizing The Board and its compensation until the business stabilizes and starts growing again.”
I don’t know much about technical financial statements, but it seems to me there’s a lot of meat in that paragraph.
For starters, non core assets are commonly defined as the parts of a company’s business that are not essential for the generation of revenue, cash flow or profits. So, I take that to mean that Bluestone wants McClatchy to sell off just about everything it owns that is not generating significant revenue, which would include its headquarters buildings and perhaps its printing plants.
(The Star’s longtime headquarters at 1729 Grand has already been sold, of course, and recently McClatchy once again put the print pavilion at 16th and McGee up for sale. The asking price for the pavilion, built at a cost of $199 million in the early 2000s, is $31 million. The Star proposes to lease the building back and continue publishing The Star and other publications.)
The second piece of that paragraph that needs deciphering is the bit about the 49.5 percent stake in The Seattle Times. It’s my understanding McClatchy owns 29 papers outright and has the 49.5 percent stake in the Seattle paper. So, Bluestone apparently sees the Seattle investment as non critical or “non core.”
The third part of the paragraph that catches the eye is the strong suggestion that McClatchy right size “The Board and its compensation until the business stabilizes and starts growing again.”
I don’t know if that means Bluestone wants compensation lowered throughout the company or just in terms of board members’ compensation. I wouldn’t think that “right sizing” board members’ compensation would save enough money to make much difference in the long term, so I’m assuming Bluestone is referring to compensation company wide, including corporate officers like CEO Craig Forman, V.P. of Operations Mark Zieman and CFO Elaine Lintecum.
(I don’t know how it could “right size” salaries in the newsrooms, however, because it’s already laid off and bought out thousands of higher-earning employees and replaced some of them with younger people at much lower salaries.)
…The ultimate goal of companies like Chatham and Bluestone is to move in and get control of media companies’ still-significant cash flow. The strategy is called “harvesting market position,” a euphemism for peeling away the cash and reinvesting it elsewhere — anywhere but back in the company.
Which brings me to the last phrase in that pithy paragraph about “right sizing” until the business stabilizes and starts growing again.
There, I believe, Bluestone hangs out an empty hope that it knows is an empty hope.
Bluestone, Chatham and other such companies closing in on newspaper companies are betting that business is never going to stabilize and never going to grow again; they believe it’s going to wither away, and they want to be the ones grabbing the cash before the elevator hits sub-basement.
Oh, and here’s one final piece of information I don’t think I’ve reported before: Chatham, the hedge fund that is McClatchy’s biggest creditor and stockholder, owns the National Enquirer.
So, papers like The Star, the Miami Herald, the Fort Worth Star-Telegram and the Charlotte Observer, are, to some extent, sister papers to the National Enquirer, the paper that believes in paying big bucks for potentially embarrassing stories and then killing those stories to protect the reputations of people its owners favor, like President Donald Trump.
How do you like that for fine company?
JimmyCsays: At the juncture of journalism and daily life in KC 
It appears to me that McClatchy is “cash flowing” itself out of business!
Not only is your theory valid, I firmly believe Forman, Zieman and Lintecum anticipated it by several years and decided to grab as much cash for themselves as they could (in undeserved raises, housing allowances, et cetera) before Bluestone & CO inevitably raided McClatchy and burned it down to the waterline…
The whole thing puts me in mind of The Crimson Permanent Assurance.
Good column, Jim! For the record, McClatchy sold its corporate headquarters building in Sacramento at the same time it sold the venerable old Kansas City Star headquarters:
https://www.sacbee.com/news/business/article171750787.html
Of course, just about every newspaper company in the nation has been selling their old headquarters buildings. Meantime, the remaining (and new) reporters and editors at the Star are working their tails off under very trying circumstances, and producing lots of important stories. I hope they can escape the clutches of McClatchy soon and find a better owner.
I was thinking about the various headquarters buildings of the 29 individual properties, Julius, but maybe they’ve already sold all those off.
You are right on target, Jim. If McClatchy has not yet sold off all their headquarters buildings around the country, I’m sure they’re working on it.
I’m sorry, but any newspaper that is so pathetic that it hires an intern (and a not very good one at that) to cover the state legislature isn’t worth saving. Let it fail as Fitz has suggested before and have a local group buy up the skeleton and actually focus on creating an agenda-less newspaper that does real journalism with real reporters writing about real local issues of concern.
John, I disagree. In my view, just because someone is an intern doesn’t mean she lacks the ability, instincts and work ethic required to help cover the state legislature.