- December 7, 2024
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Naples businessman and philanthropist David Hoffmann has invested millions of dollars into hundreds of businesses. But rarely has an investment delivered as much national attention, surprise and all-around attaboys as the $14 million or so he and one of his business units, Fort Myers-based Hoffmann Media Group, recently made into buying shares of two separate publicly traded newspaper companies.
The buying surge started in late September and mid-October with Iowa-based Lee Enterprises, owner of the The St. Louis Post-Dispatch and the Buffalo News, among other publications. That was around a $12 to $13 million investment, says Hoffmann, in a series of stock purchases totaling some 9% of the company's shares. Next: Hoffmann, in an SEC disclosure form filed Nov. 14, announced it had bought 239,516 shares of DallasNews Corp., parent of The Dallas Morning News, for $1.31 million. That's about a 5% stake in the company. (All the shares were purchased by the Jerrilyn M. Hoffmann Revocable Trust; Jerri Hoffmann is Dave Hoffmann's wife.)
“I’m overjoyed with the enthusiasm and support for the investment coming from the journalism community around the country,” Hoffmann says, adding he and his team have received “hundreds” of calls, texts, emails and hand-written notes. The outreach includes strangers sending him books about the history of, and how to succeed in, the newspaper industry.
Succeeding on a large scale in the newspaper industry, in print, and more recently digital, has been a broad challenge due to a host of circumstances, but mostly from changing reader habits. Investing guru Warren Buffett, for one, punted on newspapers, unloading the Post-Dispatch and News — Lee was the buyer — in 2020, when the Oracle of Omaha called the industry “toast.”
Hoffmann, 72, and his top newspaper executive, Hoffmann Media Group CEO Pason Gaddis, 48, believe that toast is on the cusp of becoming tasty.
In separate and multiple interviews, both Hoffmann and Gaddis say they believe the low valuations of the companies and industry in general make it the right time for a big investment. “We're calling a bottom here,” says Gaddis, in an interview before the DallasNews Corp, announcement, “and we believe the management within Lee is on the path to rightsize the business. We want to be a part of that.”
That bottom is partially why Hoffmann calls the investments — with much more to come, he promises — no-brainers. Even with Buffet bailing.
"It's a contrarian play for sure," says Hoffmann. "A lot of smart people think the newspaper industry is dead. I don't. We think the the newspaper industry, which has been beaten down, can be profitable again."
The day the DallasNews Corp. deal was announced the company's shares, on the Nasdaq under the symbol DALN, were trading for $5.11. Hoffmann officials, in a statement, called the purchase a "significant stake" in The Dallas Morning News, founded in 1885 by Alfred H. Belo. The publication is the 14th-largest newspaper in the United States, with an active monthly audience of over 12 million people across its print and digital platforms. Hoffmann is now one of the top shareholders in DallasNews Corp., according to the statement.
The Hoffmann Media Group, meanwhile, is now Lee’s No. 2 shareholder. Its stake: 538,763 shares or 8.7%, according to multiple statements and SEC filings. At $16.30 a share as of Nov. 14, that’s a value of $8.78 million. (Lee’s largest shareholder is Quint Digital Limited, a media company based in India with a 12% stake, according to SEC records.)
The Lee investment has paid off, at least in the early going on paper: Lee’s shares, traded on the Nasdaq under the symbol LEE, are up 112% since Sept. 6, when, at $7.68, the stock hit its lowest point of 2024.
Lee is the fourth-largest newspaper company in the country. It has 77 daily publications in 26 states and over 350 weekly and specialty publications serving 73 markets nationwide.
Yet Lee, like many of its newspaper and legacy media peers, has struggled mightily of late. Among the issues: $453 million in debt — a punishing figure for a company with a market capitalization of some $50 million a month ago. (Its market capitalization was up to $103.7 million as of Nov. 12.)
DallasNews Corp. has also had a rough financial go. That includes four straight years of operating losses, from -$14.9 million in 2020 to -$8 million in 2023. Revenue in the past 12 months was $131.6 million, down -14.72% from 2021.
Hoffmann says some other DallasNews data stood out to him: the company has between $30 million and $50 million in real estate assets, and some $17 million in cash. With a market cap of $28 million, he believes the company, like Lee, is significantly undervalued
“We saw an opportunity and we seized on it,” Hoffmann says. “And we are going to keep it going. We are just getting started.”
As it stands now, if Hoffmann Media Group, Lee Enterprises and DallasNews were one business it would be the second largest newspaper group in the country, say company officials. The largest newspaper company, based on number of total daily publications, is USA Today owner Gannett, with some 250 publications. That number is down markedly from over 600 in 2020 and nearly 500 in 2022, according to a report from digital PR firm Redline.
Notably, Hoffmann Media Group isn’t going all-in on the newspaper buying strategy starting from zero: the unit already owns 19 publications covering 30 markets spread from Michigan to California to Florida. The list of titles includes Florida Weekly, with editions in six Florida markets — Bonita Springs, Charlotte County, Fort Myers, Key West, Naples and Palm Beach — and the Ave Maria Sun, Florida Health Care News and the Mackinac Island Town Crier in Michigan. Also, in late September, rather than shares, Hoffmann Media acquired Napa Valley Publishing Co. from Lee Enterprises for an undisclosed sum. Napa Valley’s publications include a pair in Northern California that began publishing more than 150 years ago.
Lee Enterprises was founded in 1890 in Iowa by A.W. Lee. One of its publications in the Hawkeye State, the Muscatine Journal, had a teenage reporter named Sam Clemens — known much better under his pen name, Mark Twain. Another reporter, according to Lee’s website, in Bismarck, North Dakota, died with George Custer at the Battle of the Little BigHorn. The company also has some tech chops: In 1973 its paper in Davenport, Iowa became the first in the world to be produced totally by a computer.
Some 30 years later, in 2005, Lee made another big and bold move: buying newspaper company Pulitzer Inc. for $1.46 billion. Then in 2020 came the acquisition of Buffett’s Berkshire Hathaway newspaper unit. That led to Lee’s large debt, which started at $576 million, according to SEC documents. The long-term debt is being paid back at a 9% interest rate, says Gaddis, “and a lot of their free cash flow is going to service the debt.”
Lee’s compelling history has been of little solace in the past half-decade, as the business, like many of other big newspaper companies, has laid off reporters, consolidated, sold publications and made other financial cuts. In 2021, when the company posted $794.65 million in revenue, it also fended off an acquisition proposal from Alden Global Capital.
Lee’s board, according to Bloomberg News, said the $142 million unsolicited offer “grossly undervalued” the company. In addition, West Palm Beach-based Alden had come under heavy criticism from more than a few reporters and publications for buying nationally-known newspapers like the Chicago Tribune and Orlando Sentinel and then making major cuts in costs and personnel.
The core reasons for DallasNews Corp.'s and Lee’s decline, mirrored in the industry, are fairly straightforward: Readers and customer habits changed, and most newspapers were slow to adapt. That’s most clear in digital news, where people, starting in the early 2000s, began to get news online, not in print. Prior to that, many newspapers posted solid profits by selling print ads for anything from couches to cars, in addition to a large classified section.
Social media sites like Facebook and X accelerated the changes in how people consumed news. And fewer readers of print publications, plus other options for advertisers, began to steadily cut into what newspapers could charge companies to buy print ads. “The biggest threat to the newspaper industry,” says Gaddis, “is the rapid decline in print advertising revenue, which has been exacerbated by the rise of digital media and social platforms.”
The Redline report showcases the decline in newspapers, mostly in print but some digital, with some jarring data:
The statistics have not dented Hoffmann Media Group’s enthusiasm for its newspaper strategy.
That strategy dates back to July 2022, when Hoffmann Family of Companies acquired Florida Media Group from Gaddis, who co-founded that business in 2007. The Hoffmann Family of Companies has been a prolific buyer of businesses for several years. Outside newspapers, recent acquisitions include a ferry service in Michigan, a bankrupt dairy farm and ice cream business in Illinois and the Hertz Arena in Estero. In total, HFC operates 110 global brands spread through 30 countries and 400 locations worldwide, with some 11,000 employees.
David Hoffmann and Gaddis connected, they both say, on a belief that private equity firms in the newspaper business were overlooking a big opportunity: reporting and publishing local and community news.
That was true on a personal level, Hoffmann says, when the newspapers in the Chicago suburbs where his grandkids live stopped covering youth sports. “I can’t believe how much local news is not covered in small towns,” says Hoffmann, who is from one of those small towns, Washington, Missouri. (The son of a nurse and milk delivery man, Hoffmann didn’t have running water until he was a sophomore in high school; Forbes magazine now estimates his net worth at $1.6 billion.)
Gaddis says he sees the same thing working with Florida Weekly: local news covered by local reporters drives reader traffic, which in turn drives digital revenue. An Iowa native and paperboy growing up, Gaddis says despite the losses and debt at Lee, there are some positive forces. For one, Lee recently surpassed 50% of operating revenue coming from digital advertising and subscriptions. “That's the key to these assets,” Gaddis says. “It's how Florida Weekly is still viable today. Without our digital business, we would be a very different company.”
The other side to the strategy, says Gaddis, is with cost savings on printing less and bringing in more revenue on digital sales, the company plans to invest in local reporters. “It’s really not that complicated when you start to think about it,” he says. “We think we can redirect some of those legacy infrastructure costs, the big real estate printing plant costs, which is still pretty significant within Lee, and put it back into journalists. It's essentially getting people back into prep sports, city council meetings, school board meetings, community news and arts."
The New York Times wrote about Hoffmann’s media strategy in the Oct. 21 edition — in print and online. That partially led to the flood of calls and texts, says Hoffmann, including a few from other newspaper owners offering their publications up for sale. The Wall Street Journal wrote about the stock purchases Nov. 15.
Gaddis and Hoffmann welcome the spotlight — and pressure that comes with their save-newspapers mission.
“The last (company) to make waves at the national level in this space was Alden Capital, and we all know what happened with that,” says Gaddis, referring to the large cuts in personnel and expenses. “We're not some hedge fund. We're not looking to buy up Lee Enterprises and then suck all the revenue out of it and break it apart. … We think this is a good bet. And that’s the hand we're playing right now.”