How about some good news? Could you use some good news today?
A newspaper transaction doesn’t always have to go horribly. The worst possible outcome isn’t always predestined.
Today, shareholders of DallasNews Corporation, owners of The Dallas Morning News, voted overwhelmingly to make a lot of money by being acquired by the Hearst Corporation. (Hearst has been generous enough to describe this process as a “merger” rather than an acquisition, but when a company that makes $13 billion a year buys one that makes $125 million a year, it’s hardly a merger of equals.)
At one level, it was an easy decision: A share of DallasNews stock was trading at $4.39 when Hearst offered to buy it this summer; after today’s vote, shareholders will get $16.50 a pop. Few people will turn down a 275% return on investments. But the matter was complicated by Alden Global Capital, a rival chain, making a set of counteroffers that eventually reached $20.00 a share. Accepting that should have been an even easier decision.
But there were two complications. One: Alden Global Capital is well known as the worst possible newspaper owner for anyone who cares about journalism, a hedge fund that has gutted newsroom after newsroom across the country. And two: The fate of DallasNews Corporation would, to a great extent, be up to a single man, not the vox capitalis of the shareholder class. And that one man had no interest in Alden setting his life’s work on fire.
As I’ve written about three times recently, DallasNews has a once-common share structure where there are two classes of stock — one that trades on the open market and one that’s tightly controlled by the family that has long controlled the paper, the descendants of founder G. B. Dealey, he of the plaza. The most important of those descendants is Robert Decherd, who has been the company’s CEO for most of the past five decades. Decherd controls nearly all of the family’s shares, and that meant a sale of DallasNews couldn’t happen without his approval. And Decherd has been consistent that he does not want to feed his life’s work into Alden’s wood chipper:
“There is no circumstance under which I will change my mind [and sell to Alden], now or in the future,” Decherd wrote. “It is important to state that I have long since ceased to view my holdings in DallasNews Corporation as a financial asset. My sole objective is sustaining the journalistic quality and civic responsibility of The Dallas Morning News.”
That didn’t stop Alden Global Capital from making offer after offer, persistently confused by the concept of someone taking less money for better journalism. But Texas law is on Decherd’s side, DallasNews did the right lawyering, and Alden’s hopes for a new victim came down to today’s shareholder vote on the Hearst deal.
For Hearst to win, its acquisition would have to be approved by two-third of DallasNews shareholders in both classes — Series A (common stock) and Series B (the family shares). Series B was never in question, given that Decherd controlled more than 90% of it. For Alden to win, at least one-third of Series A shareholders would need to vote against a 275% return on their shares in the hopes that Alden could, eventually, deliver a 355% return on their shares — despite Decherd saying he’d never allow such a thing to happen and was happy to sit tight.
It didn’t work. This morning, 87% of Series A shares voted in favor of the Hearst deal. Only 531,254 shares were voted against it. Given that Alden itself owned 470,000 Series A shares, that suggests less than 2% of non-Alden shareholders were willing to hold out for the promise of a good hedge-fund pillaging.
I suppose Alden’s lawyers could be headed to a Dallas County courthouse right now, ready to file suit to stop the deal. But given that the Hearst deal is now scheduled to close tomorrow, and that Texas corporate law doesn’t give them much hope, my suspicion is that they’ll just quietly admit defeat. Well, sort of a defeat. By bidding up Hearst’s price from $14 to $16.50, Alden increased the value of its own DallasNews shares by about $1.175 million. They may have lost out on the big prize, but that’s not a bad return on a few strongly worded letters.
The sort of dual-class stock structure that saved DallasNews from Alden is mostly a relic of the past. It’s an artifact of a very particular set of circumstances that existed from roughly the 1970s through the 1990s: locally owned newspapers that wanted to maintain family control while also accessing the capital markets.
As of the 1950s, more than 70% of U.S. daily newspapers were still family owned. As new generations took control, some of the more ambitious ones wanted capital to size up — to buy TV stations and more newspapers. Newspapers threw off plenty of profit in those days, and institutional investors were happy to pay for a slice of it without needing operational control. The two-class structure let those individual newspapers become media conglomerates of various scales. Everybody made lots of money.
The internet changed all that. The wreckage in newspapers became such a drag on those conglomerates that they spend the 2000s and 2010s splitting off their TV arms and…figuring out what to do with their print remains. Some sold to bigger chains, figuring they might have the extra capacity to figure out a solution. Some tried their best before selling to a hedge fund. Some, like DallasNews, held out as long as they could, trying to match budget cuts to revenue declines in a way that respected the work of their (usually) fathers and grandfathers. The number of major newspapers still controlled by the multi-generational families these two-class structured supported has dwindled. The Sulzbergers of The New York Times don’t have many peers left. Maybe the class of billionaires that’s swept up many important papers over the past decade will spawn new legacies of multi-generational ownership; color me doubtful. Most major papers are now controlled by hedge funds or chains that view them as financial instruments rather than community assets.
If all goes according to plan, 140 years of control by G. B. Dealey and his descendants will come to an end tomorrow. If your last name isn’t Murdoch or Sulzberger, the days of family control of publicly traded newspaper companies is over. But as the old model breathes its last, it was able to serve the public interest one final time.
Photo of the State Fair of Texas in Dallas’ Fair Park via Adobe Stock.
