April 6, 2017

What been tagged the “rat’s nest of corporate intrigue” at Tronc. Inc., publisher of The Los Angeles Times and Chicago Tribune, got a bit larger and rattier Thursday as the company alleged that a Los Angeles billionaire has consistently violated its rules by buying more stock.

The letter from Tronc, which alleges a “cynical and transparent attempt to smear” the company, was sent to John Quinn, a Los Angeles attorney representing Patrick Soon-Shiong and is part of the cat fight between him and Tronc Chairman Michael Ferro, who himself as been buying lots more stock.

As Ferro last year fended off a takeover attempt by Gannett, he brought in medical industry billionaire Soon-Shiong as a major investor. The doctor-entrepreneur originally took a nearly 13 percent stake in Tronc, previously known as Tribune Publishing, for $70.5 million and wound up as a vice-chairman.

That made him the second-biggest shareholder behind Ferro but it appears, neither his investment nor title have carried much weight with Ferro nor a board stacked in Ferro’s favor. In what now seems little surprise, their relations soured amid a mix of factors, including Ferro’s clear desire to run the show, Soon-Shiong’s belief Ferro was doing a poor job, Soon-Shiong’s kingmaker aims and their respective moves to buy more of the languishing stock.

Ferro also bought out a potential ally of the doctor, investor Oaktree Capital, for $56.2 million and solidified his hold, in the process raising speculation from some observers that maybe he’d prefer to take the company private.

The board allowed Ferro to up his own stake to 30 percent but has resisted a request to do the same from Soon-Shiong, whom it portrays as not interested in the company’s long-term health. It’s also tried to dilute Soon-Shiong’s influence via the Oaktree shares purchase and disclosing that he’d not be on the slate of directors for the upcoming annual meeting to be held in Chicago, where Ferro is based.

Whether any of that is in the interests of shareholders beyond Ferro is unclear, and certainly not answered by Thursday sharp missive.

The latest rhetorical fusillade, memorialized in a letter to Quinn from New York-based attorney Yosef Riemer of Kirkland & Ellis, manifests the Ferro-Tronc claim that Soon-Shiong has been buying stock in violation of Tronc rules, specifically without the approval of the firm’s general counsel.

In addition, it derides his “media campaign” against Tronc and his alleged tries to “coerce” the company to sell The Los Angeles Times to him. His ambitions with the Times are transparent and no surprise, given his stance as an activist local citizen (he also owns a piece of another high-profile institution there, the NBA’s Lakers).

And, when it comes to buying the Times, says Riemer’s letter to Quinn, the only way to do that would be to be the entire company. “And if your client wants to make such a proposal, “the Board will do its duty and consider it.”

Soon-Shiong earlier complained of poor corporate governance at Tronc and that it sought to shaft him by moving up the shareholders meeting and not letting him propose a rival slate of directors.

The Thursday letter would appear to at minimum underscore a corporate governance mess that seems to have distracted key players from confronting significant competitive issues facing the Tronc newspaper group, as it does most papers.

Just more than a year ago Ferro initiated a clever coup d’état in morphing from friendly, passive investor backing then-CEO Jack Griffin, whose record of accomplishment was very modest, into a very active chief after moving on Griffin and sending him packing.

There was much talk (mostly by him) of his transforming both the company and newspaper industry itself through innovation, including the use of artificial intelligence that he was versed in as a tech entrepreneur. Any evidence of such change would not be clear to readers at this point, though it’s not especially clear at most newspapers beyond The New York Times, Washington Post and perhaps a few others.

What’s clear is the situation has devolved into a case study in boardroom disarray, with two very wealthy and ambitious, even headstrong individuals feuding, said Nell Minow, a corporate governance expert.

Even before the latest missive, Minow had concluded, “Tronc continues to add insult to injury — and some more injury, too — with its apparently endless series of governance atrocities,” she said. “Ferro seems incapable of understanding the basic principle that shareowners have rights, and Dr. Soon-Shiong is clearly right that the stock has a ‘governance discount,’ reflecting the lack of trust investors have in this management team and board of directors.”

Poynter has reached out to Soon-Shiong’s attorney and has not heard back yet. Here’s the letter:

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New York City native, graduate of Collegiate School, Amherst College and Roosevelt University. Married to Cornelia Grumman, dad of Blair and Eliot. National columnist, U.S.…
James Warren

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