How GateHouse Loots its Papers

I just skimmed your link. But your post paints a picture that has nothing to do with reality. 1) First, Fortress Investment Group isn't a hedge fund. It's a private equity firm. 2) Fortress didn't show up to "manage" Gatehouse in 2013. Fortress bought Liberty Group Publishing in 2005, which it renamed Gatehouse. It paid $527 million at the time -- it has lost pretty much all of that money. 3) Gatehouse spent the next 7 or 8 years buying up failing newspapers, at considerable debt, trying to build a media empire from others' ashes. They went nuts buying everything in sight, expanding to more than 300 newspapers. They weren't successful, which is why the company declared Chapter 11 bankruptcy in 2013. They had accumulated more than a billion dollars of debt, and their newspapers were becoming increasingly more worthless by the day. 3) You seem to think that Fortress is into Gatehouse for $1.3 million, with this narrative that they are in "a heads I win, tails I win" situation. Um, no. Trust me, that is ridiculous. Fortress got into this thing for more than half a billion dollars. It made a huge gamble that it could succeed in the newspaper business. Their original half a billion dollar + equity investment is close to worthless. They took a huge bath.

 

Not sure what your point is.

Two things:

1) I understand that the death of newspapers is a particularly touchy subject for a lot of people on here. It's natural. But facts matter. Gatehouse, under Fortress' management, went nutso buying up newspapers, at a time that newspapers were being destroyed by the Internet. Their gambit didn't fail because they were looting the newspapers -- that made me scratch my head when I saw the thread title. It failed because they accumulated more than a billion dollars of debt buying up businesses in a dying industry at a time that death started to accelerate. They started to drown in that debt, because the businesses started racking up bigger and bigger losses. They essentially invested in the Titanic and had a strategy of fixing it by buying the Hindenburg.
2) That said. ... I know a little bit about Fortress. I am sure that Wes Edens (who runs Fortress, which trades publicly) managed to finagle some crazy management fees from the mess his company made of Gatehouse, and I am sure he personally gets compensated nicely. I'm not losing sleep for him, if that is your question. But the investment itself lost a lot of money. It's just a fact. At the end of the day it is also between him and his investors -- the institutional investors (which by the way, might be managing pension funds for a lot of regular people) and private investors who have forked over cash to Fortress expecting a return on their investment. They can decide for themselves whether they profit overall from investing with Fortress.

 

Fortress put itself $527 million into what proved to be a crummy investment, which they made worse to the tune of $1 billion plus of debt in a failed bid to somehow grow their way out of it. It ended in bankruptcy. I don't know Ken Doctor. But anyone who would start a narrative POST bankruptcy, to somehow try make more than a half billion dollars of blown equity into a story about that investor looting the company is either dishonest or clueless (put charitably).

I am working from memory, but I believe the real problem with Fortress in the whole thing was that they tried to hide behind bankruptcy while wanting to keep borrowing to make more acquisitions (in itself nuts). And their creditors (rightfully) had a huge problem with it. I can't remember precisely how the whole thing got resolved.

I have no idea where in Fortress' 10-K (Fortress does trade publicly) that 74,000 share / $1.3 million stuff comes from. But what it would really suggest is that a $527 million original investment was worth $1.3 million when they did that filing with the SEC. Take out whatever exhorbitant management fees Fortress probably extracted over the years, and the whole "hedge fund, "contract" to "manage," "looting" thing is still ridiculous. They lost hundreds of millions of dollars by trying to be newspaper moguls.

 

1) Who is the they that "gambled and lost"? I mean, among Fortress' shareholders during the time was the State Teachers Retirement System of Ohio. There were Fidelity Mutual Funds that owned A LOT of shares in Fortress. I found your "don't you feel just terrible for them" thing really trite, although I don't think you understand just how trite you are being. I mean, when some teacher is ready to retire 15 years from now, and their underfunded pension that participated in the losses tells them they are SOL, will you be flip about it?
2) A lot of good people may or may not have lost jobs "because" of Fortress. Private equity firms often make messes of their investments, because they get involved in businesses they don't understand. Fortress, in particular, hasn't been a great performer. But if you have this narrative in your head that 300 newspapers were swimming along until a private equity firm came and looted them. ... essentially the first post on this thread. ... it's just nonsensical. Those newspapers were getting destroyed by a changing world with or without Fortress buying Liberty Group Publishing, creating Gatehouse from it and putting itself into massive debt to buy up a boatload of other newspapers as the newspaper business was going to pot.

Lancey, you are trying to discuss something you seemingly don't understand. Your original post was a story about the OWNER of Gatehouse -- which had put up more than half a billion dollars of its investors' money for that equity (and proceeded to take a huge loss) -- being a contractor of some sort that showed up post bankruptcy to manage the company with no skin in the game, and proceeded to loot the company. You had no clue.

Now you are trying to gump around what I posted by pulling footnotes out of public filings from years after what you were trying to discuss in the first place. Just look at the first thing you typed in that last post: "The money that Fortress lost pre bankruptcy is a sunk cost. Though I suspect it as not all their money but whatever. "

1) Most owners of something that loses most of its value, don't simply throw up their hands and say, "Oh well. It's a sunk cost." They try to salvage what they can from their failure. And of course, anyone who writes something about them looting the company, without any mention of how the company ended up in bankruptcy, including the half a billion dollars the "looters" had lost on BUYING the damned company, is either being dishonest or is so dense they shouldn't be writing about it.

2) You "suspect it as not all their money but whatever," eh? What does that even mean? I mean, before selling itself to Softbank, Fortress was one of the few private equity firms that traded publicly -- which might actually be a line of attack someone intent on making it into a boogyman might try, because Wes Edens sold shares at a premium when they went public (right before the financial crisis), and by the time they sold themselves they were worth a fraction of what he had cashed in at (in large part because of failed investments like this one). But just to clue you in about the "not all their money but whatever." That money might have been yours. ... If you own any mutual funds, say in a 401(K) or IRA. Anyone who owned shares in Fortress took part in the loss we're talking about (or as you have it, was looting Gatehouse).