Challenges await as Hoffmann prepares to take over Iowa newspaper chain

Just a few days after Christmas last month, it was announced that David Hoffmann, the patriarch of The Hoffmann Family of Cos., would soon be named chairman of the Lee Enterprises newspaper chain.

The agreement came after Hoffmann led a group of investors in the purchase of $50 million in stock in the Iowa newspaper company.

The new role and ownership share are a major step for the Naples-based billionaire businessman who has placed his considerable wealth and knowhow into the newspaper industry. He sees a future in the industry — if properly run — and has long wanted to buy Lee to combine with his existing media holdings.

Hoffmann originally committed a minimum of $20 million himself with the rest coming from “other top existing investors,” according to a statement issued by Lee. He eventually committed to another $15 million.

The investment, the statement says, “is expected to satisfy a condition to amend the company’s existing credit facility, reducing the annual interest rate” on about $455.5 million of Lee’s long-term debt down from 9% to 5% for five years. This, the statement says, will materially improve the company’s capital structure and cash flow.

As part of the agreement, Hoffmann is expected to assume the role of chairman of the board, a job he will take on when the deal closes later this year, says a Hoffmann spokesperson.

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Mary Junck remains the chair now.

The purchase and taking a controlling interest in Lee is a longstanding goal of Hoffmann’s, who has long said he wanted to combine it with Hoffmann Media Group to build “at worst, the second biggest newspaper chain” in the country.

Lee Enterprises owns The St. Louis Post-Dispatch, The Richmond Times-Dispatch and the Buffalo News, among other publications. Its portfolio includes 350 weekly and specialty publications in 72 markets and 25 states.

In March, Hoffmann, one of the largest investors in the company, made his intentions clear in sending a letter to Lee President and CEO Kevin Mowbray. In the letter Hoffmann said he wanted “to open discussions with you regarding a potential combination of our companies, in which the HF Companies would pursue acquisition of Lee in its entirety.”

(Mowbray is retiring “concurrently with the execution of the stock purchase agreement” according to the statement.)

The Hoffmann Family of Cos. owns 40 publications spanning over 30 markets. About seven hours before announcing the deal with Lee on Dec. 30, Hoffmann announced it had bought the Aspen Daily News.

Hoffmann has said his plan for Lee is to focus on improving coverage and increasing readership in local markets while bringing financial stability to the newspapers.  

Lee has a reputation in the newspaper industry for eliminating newsroom jobs and reducing print editions, some locals say. In October, the company announced it was cutting back the number of days it produced a printed newspaper edition each week at four of its Virginia newspapers. That was about a month after it laid off reporters in Richmond.

Layoffs and cutting print editions are not unique to an industry where many, though not all, publications struggle to maintain subscriptions and transition to digital as reader habits change.

But it doesn’t have to be that way, says Hoffmann.

“I can tell you that I know Lee's struggling. A lot of newspapers are struggling,” Hoffmann told the Business Observer in an August interview for another story.

“All 36 of ours are profitable. And there are things that we do to make sure that happens. We engage with advertisers. We engage with the community.”

A spokesperson says Hoffmann was unable to comment for this story because Lee is a public company.

In the August interview, Hoffmann said he understands readers are shifting away from a print product as their primary source of news but has continued to invest in maintaining print editions at his publications. He also criticizes the industry's focus on national news, advocating that local news coverage is what readers want — and need.

As for operations, Hoffmann said his strategy includes consolidating costs, empowering local editors and incentivizing salespeople.

Stepping in as chairman of Lee may have some challenges, though.

The Hoffmann approach — the family business, which has offices in Naples, Chicago and St. Louis, owns more than 125 companies with 400 locations in 30 countries and employs 17,000 people — is purely entrepreneurial. It believes in buying companies, providing resources and allowing local management to continue operating them.  

A public company, though, is beholden to shareholders often focused on short-term returns and faces strict regulations and public reporting.

“There's a lot of things that we do to make it profitable, so I think our focus is just a little better,” Hoffmann said in August. “We're entrepreneurial. We're a private company, so you look at things differently when you're private.”

One possible solution to that issue is buying Lee outright and taking it public.

Hoffmann, in his March letter to Mowbray, wrote that his company remains unwavering in its support of local journalism, both in print and in digital formats.

He went on to write that Hoffmann Family’s goal was to leverage its ownership position in Lee with its other media assets to support and grow local news outlets.

Hoffmann added: “We believe this commitment represents a sharp contrast to other potential acquirers such as non-local hedge funds and investment firms primarily concerned with increasing profits over jobs." Hoffmann says what's more important is "local concerns and the power of quality journalism.”