McFeely weblog: Bismarck Tribune proprietor adopts ‘poison capsule’ to sluggish hostile takeover by hedge fund

The board of administrators of Davenport, Iowa-based Lee Enterprises unanimously voted for what’s technically often called a limited-duration shareholder rights plan. Extra generally often called a “poison capsule,” it is a protection technique utilized by a focused agency “to forestall or discourage a possible hostile takeover by an buying firm,” in response to the web site Investopedia.


The tactic is used to make a focused firm much less enticing to the potential acquirer.

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Alden International Capital stated in a letter to Lee’s board final week that it was providing $24 a share, representing a 30% premium over the corporate’s closing inventory value the earlier Friday.

Alden is a “vulture capitalism” agency that within the final decade has bought dozens of newspapers and ruthlessly gutted them by chopping workers, promoting property and jacking up subscription prices in an effort to maximise short-term earnings whereas guaranteeing a steadily worsening product and, finally, the possible closing of the newspaper.

In accordance with an in-depth report in The Atlantic final month, Alden has mastered the worthwhile dismantling of newspapers.

“The boys who devised this mannequin are Randall Smith and Heath Freeman, the co-founders of Alden International Capital. Since they purchased their first newspapers a decade in the past, nobody has been extra mercenary or much less excited by pretending to care about their publications’ long-term well being,” The Atlantic reported.

“Researchers on the College of North Carolina discovered that Alden-owned newspapers have minimize their workers at twice the speed of their rivals; not coincidentally, circulation has fallen sooner too, in response to Ken Physician, a news-industry analyst who reviewed information from a few of the papers,” The Atlantic continued. “That may sound like a shedding components, however these papers don’t must change into sustainable companies for Smith and Freeman to earn a living.

“With aggressive cost-cutting, Alden can function its newspapers at a revenue for years whereas turning out a steadily worse product, detached to the subscribers it’s alienating. ‘It is the meanness and the class of the capitalist market dropped at newspapers,’ Physician stated. Up to now, Alden has restricted its closures primarily to weekly newspapers, however Physician argues it is solely a matter of time earlier than the agency begins shutting down its dailies as nicely.”

Lee Enterprises’ plan would go into impact if Alden acquires greater than 10% of Lee’s inventory within the subsequent yr. In accordance with information experiences, different shareholders at that time might purchase shares at a 50% low cost or get free shares for each inventory they personal.

The thought is to dilute the inventory, making it dearer for Alden to accumulate a controlling stake. Alden has stated it owns 6.1% of Lee’s inventory already. Alden supplied to purchase Lee for $141 million, or $24 per share, which is 30% greater than the corporate’s inventory is value.

In a press release, Lee’s chairman stated the board’s plan would give it time to contemplate Alden’s proposal “with out undue strain whereas additionally safeguarding shareholders’ alternative to comprehend the long-term worth of their funding.”

Lee Enterprises dubs itself “a serious subscription and promoting platform and a number one supplier of native information and data.” It owns 77 newspapers within the U.S., together with legacy manufacturers just like the St. Louis Publish-Dispatch, the Omaha World-Herald and the Buffalo Information.

Alden has change into one of many largest newspaper homeowners within the nation and consists of titles such because the Chicago Tribune and Baltimore Solar.

Investopedia says poison capsules aren’t all the time carried out to cease an acquisition. One could also be enacted to get a better valuation or extra favorable phrases for the acquisition.

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