January 22, 2015

Gannett has yet to complete the split of the company in two, spinning off publishing from television and digital, but the prospect already has a famous corporate shark nibbling.

Carl Icahn, who controls 6.6 percent of Gannett stock asked in a letter Wednesday for two seats on the board.

He also expressed particular concern that each of the new companies be open to takeover bids and not adopt any of the defenses management can use to fend off unwelcome offers.

His letter to Gannett CEO Gracia Martore charges that the capital structure and plans for the publishing unit have been badly communicated to the market, resulting in an 8 percent decline in Gannett stock since plans to divide the company were announced in August.

Icahn further wrote:

We have spoken with many large Gannett shareholders since we first announced our position. Everyone seemed please by the company’s spin-off announcement, but many expressed dissatisfaction with the company’s governance profile and poor communication with the market.  We believe that many of these shareholders will be supportive of our proposals and our director nominees…

That claim indirectly addresses an important point.  A 6.6 percent share does not give Icahn much leverage to make demands on the company.  But if he can bring along other large institutional investors, his chances of success would increase.

According to Gannett’s latest filing (as reported by Yahoo Finance) the top 10 institutional investors control more than 40 percent of Gannett stock.  But top of the list is Vanguard, which most likely includes the stock in the huge portfolio of retirement funds it manages and has no beef with how the company is run.

Gannett responded first thing this morning with both a press release and a letter to employees.  Marge Magner, non-executive chair of the Gannett board, characterized Icahn’s maneuvers “as an overreaching campaign to advance his own agenda,” not necessarily in the interests of the rest of shareholders.

Martore’s letter to employees warned of more accusations to come:

We don’t know how Mr. Icahn will conduct himself, there is likely to be press coverage of his comments about Gannett in the weeks and months ahead. I urge you not to be distracted by whatever he chooses to say about our company. Gannett is in a very strong position, and the best thing we can all do is to stay focused on our business and our day-to-day responsibilities.

Shareholder activists have a mixed record in influencing board-level decisions at media companies.  When three longtime holders of large stakes in Knight Ridder lost confidence in management in 2006, they forced a sale even though they controlled less than a majority of shares.

Two speculative investors assembled more than 20 percent of New York Times Co. shares and tried to put the company in play, but they were rebuffed.

However, the Times had the protection of family control of the majority of voting shares.  Gannett does not.

Icahn also has the option of acquiring a larger stake if he feels his effort is gaining momentum.

He can be counted on to be persistent.  His most recent campaign was to persuade e-bay to spin off PayPal as a separate company.  E-bay directors resisted for nine months but agreed to the move in September (to be completed later this year).  Icahn’s share in the company was less than 1 percent when he began demanding changes.

Gannett stock was up 2.25 percent for the day at the close of trading.  But that should not be read as market excitement about Icahn’s move.  It was a strong day for the market  generally, and shares of the New York Times Co and McClatchy were up by a much larger percentage.




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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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