A Delaware Chancery Court judge ruled Tuesday that Lee Enterprises followed its bylaws in rejecting hedge fund Alden Global Capital’s bid to nominate two candidates for Lee’s eight-member board of directors.
Vice Chancellor Lori W. Will wrote that an Alden affiliate simply missed the deadline for properly making nominations. In addition, she said, the affiliate had not completed a transfer of stock that would make it a shareholder of record — a requirement to make nominations.
Because the nominations were made concurrent with Alden’s hostile takeover bid in late November, Will said that she could consider whether Lee’s action in failing to offer accommodations was a defense to keep control of the company. On balance, though, she said not.
The ruling clears the way for Lee’s slate to be approved at its annual meeting March 10. That will leave management in place at the newspaper chain’s 77 dailies, including the St. Louis Post-Dispatch, The Buffalo News and Omaha World-Herald.
However, Alden signaled that it is not ready to abandon its campaign to gain influence in how the company is run. In a press release, Alden said that it will be filing a proxy statement urging shareholders to vote no on board veterans Mary Junck and Herbert Moloney.
Alden has argued that the two have become self-serving over a period of 20 years and stand in the way of actions that would increase the company’s value.
In a statement. Alden said the pair should be removed: “Holding entrenched Board members Mary Junck and Herbert Moloney accountable for their decades of destructive decision-making, value destruction and enrichment at shareholders’ expense is important especially given Lee’s poor corporate governance practices and significant underperformance since the acquisition of Berkshire Hathaway’s BH Media Group publications (in March 2020).”
A Lee spokesperson countered: “Now that the Delaware Court of Chancery has confirmed what we knew all along — that the Lee Board made a proper decision in rejecting Alden’s attempted nominations — Alden has invented entirely new, hollow governance complaints in its continuing and transparent attempt to destabilize the Board and the Company’s leadership to help advance its grossly undervalued hostile offer for Lee. We have confidence that Lee’s shareholders will see through these disingenuous arguments and support Lee’s Board.”
The Alden offer was for $24 a share. Lee’s stock has been trading in recent weeks at more than $35 a share and gained to $36.50 a share by mid-morning. So Alden (or another bidder) would need to up what it was willing to pay to have a chance for success.
Criticisms of board members and attempts to gain seats are standard tactics in the hostile takeover playbook. Alden deployed the strategy in its gradual campaign over several years to undermine management of Tribune Publishing. It ultimately bought the company last summer.
Though Alden lost this round, it could nominate its preferred candidates for the board in the 2023 annual meeting election.
Alden has a reputation for deep cuts and selling off real estate and other assets at papers it owns. It offered newsroom buyouts at the Chicago Tribune and other Tribune Publishing metros days after the acquisition, reducing news staff by roughly 20%, according to NewsGuild chapters.
Will’s decision noted that a different Lee shareholder, Cannell Capital, mounted a similar campaign against Junck, Moloney and CEO Kevin Mowbray in 2019.
Then Lee executives met with Institutional Shareholder Services, an independent advisory group that issues opinions on contested board elections. ISS found some flaws in Lee’s governance but said “the dissident critique does not rise to the level where removal of the company’s board leadership would appear to be beneficial.” The three were reelected to three-year terms, which expire this year.
In her 48-page ruling, Will highlighted that the Alden affiliate had started work with an adviser on its takeover bid in October and could have made the deadline rather than missing it. I asked an Alden representative to explain why the nominations were not filed sooner but did not get a reply.