Media, vulture targets

Mr. Smith puts money into risky investments that few others will touch — and these days, that includes many newspaper and radio companies.


For the better part of a year, Mr. Smith has been quietly building a fledgling media empire. He has invested millions of dollars in small and midsize newspaper chains, as well several radio broadcasters.


His exact ambitions are unclear. But industry executives and analysts say Mr. Smith — who made money investing in troubled companies after the junk-bond market collapsed in the 1980s — is clearly betting that he can eke out profits despite the industry’s running troubles.

Mr. Smith is not the only vulture investor watching the media industry. A handful of hedge funds, as well as some big banks, are vying for ownership or have already gained controlling interests in newspapers across the country, including The Los Angeles Times, The Minneapolis Star Tribune and The Chicago Tribune.


Hedge funds have even grabbed stakes in supermarket tabloids like The National Enquirer and Star Magazine, as those companies have undergone rounds of restructurings.


Funds also gained the upper hand for the television broadcasting company Ion Media Network and the publishing and educational materials company Houghton Mifflin Harcourt.

Vulture investors like Mr. Smith often buy up the debt of weak companies for pennies on the dollar, hoping to turn a profit when the companies go through bankruptcy or restructure their businesses. Often they hope to swap the debt for equity. But some analysts wonder how, or whether, the vultures can steer some of these companies through the unprecedented upheaval in the industry.


“These people have been bottom feeders, and they figure what they’re getting is still a valuable, though diminished, franchise and they’re willing to pay bottom dollar for it,” John Morton, a newspaper industry analyst, said of these investors. “But it’s unclear that this industry is going to get a whole lot better.”


Nonetheless, some big vulture investors seem to be betting that the industry’s worst days are over, or that, at the least, that further cost cutting or consolidation can slow the bleeding, analysts said.

But analysts and industry executives are keeping a particularly close eye on Mr. Smith. He has been one of savviest and stealthiest investors in the media realm in the past year and a half, they say.


Mr. Smith started his own brokerage firm, R.D. Smith & Company, in 1985, after spending years climbing the ranks of Bear Stearns. For the past decade or so, he has quietly tended to running money for himself and his family.


But in late 2008, he opened a new fund which surged an astonishing 187 percent last year. This year, however, the fund was up only 2.9 percent this year through the end of July, according to Absolute Return + Alpha, an industry magazine.


In a letter to investors in April, the firm said the fund held significant positions in 15 companies and that two of the current themes were distressed financials and media companies.


In recent months, Mr. Smith has built up a significant stake in MediaNews Group, a publishing company that owns The Denver Post and San Jose Mercury News, as well as The Journal Register, which controls 170 titles, including The New Haven Register and The Trentonian.