A second big-dollar investor in Tribune Publishing is calling on the newspaper company to cut a deal with Gannett, just two days after it rebuffed Gannett’s $864 million offer to buy the company.
In the letter sent to Tribune’s board Tuesday, Towle & Co, a St. Louis-based investment firm, said the owner of the Los Angeles Times, the Chicago Tribune and eight other major dailies has abandoned its “responsibility of maximizing shareholder value” by not accepting Gannett’s deal.
You have shrugged off the sincere interest of Gannett in the potential purchase of Tribune Publishing. We are greatly perplexed at your unreasonable, capital destructive position. As we write this letter, Tribune stock is down 15% to less than $12 a share.
The letter goes on to outline Towle & Co’s lack of confidence in a strategy, outlined by Tribune Publishing Chairman Michael Ferro, which includes establishing an artificial intelligence business unit called Tronc and expanding the Los Angeles Times into a global publication covering entertainment.
The gut-wrenching transformation of newspapers to the digital age is complex and difficult. Our concerns persist that Tribune’s revenue and earnings will decline in coming quarters. Such a result will likely weaken support for the company by the investment community. It may take a number of years to establish a pattern of revenue and earnings growth. Also, there is a possibility that you won’t attain your lofty turnaround goals. Failure of Tribune in its current form is a distinct possibility.
Also in the letter, Towle & Co castigates Tribune for its decision to issue $70 million in shares to Nant Capital, the investment vehicle controlled by Los Angeles healthcare billionaire Patrick Soon-Shiong:
Your decision to dilute our ownership position by issuing 4.7 million shares to Nant Capital, LLC was most distasteful. Furthermore, stacking the Board and ownership in favor of one particular view is not good governance. In fact, your brazen efforts of late have disrupted our belief in fair play. We now believe your primary interest is self-interest. You have fully demonstrated a lack of concern for the majority of unaffiliated shareholders whom we believe want a fair and reasonable transaction with Gannett.
Towle had written Tribune directors privately May 18 asking that they negotiate with Gannett. It went public with the more harshly worded letter today after new share were issued to Nant.
The letter also accuses Ferro and others allied with him of breaching their “fiduciary duty” to maximize shareholder value. That theme will figure in any lawsuit that may be brought to exert further pressure for a deal.
In a statement Wednesday, Tribune objected to Towle’s characterization that it was abandoning its fiduciary duty, saying that it “stands ready to work with Gannett” if a mutually beneficial deal should materialize.
The Board of Tribune Publishing stands ready to work with Gannett to assess whether there is a path forward that will create more value for both sets of shareholders. The Board takes its fiduciary duties seriously and continues to act in the best interests of all shareholders. Assertions to the contrary are simply false. Despite the fact that ISS indicated the Board has “grounds to decline to engage” on Gannett’s proposal, the Board has invited Gannett to agree to a mutual Non-Disclosure Agreement under which both parties could engage in due diligence and discussions.
Towle & Co, which owns nearly 4 percent of Tribune Publishing, has become the second major shareholder to publicly rebuke the company. Oaktree Capital, the Los Angeles based-investment firm that was previously the company’s second-largest investor, sent a letter to Tribune’s board earlier this month that said refusing to deal with Gannett would “destroy enormous shareholder value.”
In addition to Oaktree and Towle, Tribune Publishing has a number of substantial holders who could lean on Tribune’s board in pursuit of a deal. Despite objections from shareholders, Ferro has so far proved adept at fending off Gannett’s takeover bid, driving up the company’s offer while shoring up his own control of the company.
Here’s the Towle letter:
Dear Board of Directors:
There is no joy expressed at Towle & Co. in forwarding the enclosed message to you. We are saddened by the hostile environment that has erupted between Tribune Publishing and Gannett. Our expectation is that both parties will act in the best interests of their shareholders, employees, and customers.
Towle & Co. continues to control 1.4 million shares or 3.85% of Tribune’s common stock including the recent dilution. We requested in our letter of May 18, 2016 (see attached) that the Tribune Board of Directors open discussions with Gannett utilizing their $15 per share offer as a “viable starting point to quickly negotiate a final transaction price.” To date, this action has not occurred. Our letter of May 18, 2016 was addressed to the Board of Directors of Tribune only. In light of recent, disturbing developments, we now feel the need to share our views publicly.
From our view as an unaffiliated shareholder, the Tribune Board of Directors has abandoned its fiduciary responsibility of maximizing shareholder value. You have shrugged off the sincere interest of Gannett in the potential purchase of Tribune Publishing. We are greatly perplexed at your unreasonable, capital destructive position. As we write this letter, Tribune stock is down 15% to less than $12 a share.
The gut-wrenching transformation of newspapers to the digital age is complex and difficult. Our concerns persist that Tribune’s revenue and earnings will decline in coming quarters. Such a result will likely weaken support for the company by the investment community. It may take a number of years to establish a pattern of revenue and earnings growth. Also, there is a possibility that you won’t attain your lofty turnaround goals. Failure of Tribune in its current form is a distinct possibility.
Your decision to dilute our ownership position by issuing 4.7 million shares to Nant Capital, LLC was most distasteful. Furthermore, stacking the Board and ownership in favor of one particular view is not good governance. In fact, your brazen efforts of late have disrupted our belief in fair play. We now believe your primary interest is self-interest. You have fully demonstrated a lack of concern for the majority of unaffiliated shareholders whom we believe want a fair and reasonable transaction with Gannett.
We are greatly disappointed in your recent actions. You have impaired the ability of Towle & Co. to bring value to its clients. For the benefit of all shareholders, we urge the Tribune Board of Directors to negotiate and close a transaction with Gannett at a price greater than $15 a share. Let common sense and wisdom prevail.
