Making sense of Tribune Publishing's poison pill blocking Gannett offer

May 10, 2016
<p>There's irony in an activist-dominated board's adoption of anti-takeover measure just two years after Delaware Court decision against Third Point in Sotheby lawsuit&nbsp; &nbsp; &nbsp;</p>

The poison pill that Tribune Publishing’s board adopted over the weekend in response to Gannett’s hostile takeover bid shouldn’t surprise anyone who’s been even partially following developments at the owner of the Los Angeles Times and Chicago Tribune since February. On second thought, pehaps it should.

Gannett’s $815 million offer equates to $12.25 a share and represents a 65 percent premium to the price at which Tribune’s stock closed on April 12, the day the offer was received. The share price has risen steadily since then and closed at $11.50 on Monday.  

The move by the Tribune board followed Gannett’s announcement that it would press shareholders to withhold their votes for all eight board nominees at the shareholders meeting scheduled for June 2, which escalated the takeover battle, as reported by Bloomberg News on Monday.

The use of poison pills and other pre-emptive measures to maintain corporate control has long been suspect, if not fully disdained, in corporate governance circles. If recent changes in senior management and on the board are part of a larger plan to rebrand Tribune as a technology and content company, which needs to be given time to succeed, efforts to avoid a hostile takeover make sense, especially if the hostile bid is from a strategic acquirer whose business model Tribune is trying to shift away from. In its May 9 press release explaining the move, chairman emeritus and current director Eddy Hartenstein said, ‘The entire publishing industry has been turned upside down over the last few years and we believe in giving the team a reasonable period to execute on the compelling vision they have articulated.’ In Monday’s press release, Tribune reiterated its accusation that Gannett is trying to steal the company.

The shareholder rights plan, which will expire in one year, provides for the rights to be exercisable 10 days from the public announcement that a person or group has acquired 20 percent or more of Tribune’s common stock or has initiated a tender offer that would result in the ownership of 20 percent or more of Tribune’s common stock. If the rights become exercisable and a person or group acquires 20 percent or more of the common stock, each holder of a right, except the person triggering the rights, would be entitled to receive shares with a market value of two times the exercise price of the right.

What’s ironic about the rights plan is that it has been adopted by a board to which an activist investor and his hand-picked appointees have gained such considerable access in recent months. Currently, half of the 10 board seats are controlled by Michael Ferro, whose company bought a 16.6 percent stake in Tribune Publishing for $44 million in February,  and his hand-picked friends, including new CEO Justin Dearborn, a former health care technology executive and a newcomer to the media industry. In a May 2014 ruling in favor of Sotheby’s, the Delaware Court of Chancery upheld expanding the use of poison pills to protect a company not only from a would-be acquirer but also from an activist trying to the secure a larger ownership interest in the stock. That decision prevented Dan Loeb's actuvist hedge fund, Third Point, from increasing its stake in Sotheby's in order to be able to nominate three directors to Sotheby’s board.

Two of Tribune’s directors who aren’t aligned with Ferro intend to step down on June 2. If the remaining eight are re-elected to the board, Ferro and his camp will effectively control the board. ISS has not yet issued its recommendations about whether or not Tribune shareholders should re-elect the eight board members.

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