McFeely Blog: Bismarck Tribune owner adopts ‘poison pill’ to slow down hostile takeover by hedge fund

The board of directors of Lee Enterprises, based in Davenport, Iowa, voted unanimously for what is technically known as a limited-term shareholder rights plan. More commonly known as the “poison pill”, it is a defense strategy used by a targeted company “to prevent or discourage a possible hostile takeover by an acquiring company”, according to the Investopedia site.

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The tactic is used to make a targeted business less attractive to the potential buyer.

Alden Global Capital said in a letter to Lee’s board of directors last week that it was offering $ 24 per share, which is a 30% premium to the company’s closing share price on Friday. previous.

Alden is a “vulture capitalism” company that over the past decade has bought dozens of newspapers and mercilessly gutted them by downsizing, selling properties and increasing subscription costs with the goal of to maximize short-term profits while ensuring ever-deteriorating product and ultimately the likely closure of the newspaper.

According to a detailed report in The Atlantic last month, Alden has mastered the profitable dismantling of newspapers.

“The men who designed this model are Randall Smith and Heath Freeman, the co-founders of Alden Global Capital. Since buying their first newspapers ten years ago, no one has been more mercenary or less interested in pretending to care about their publications. long-term health, ”The Atlantic reported.

“Researchers at the University of North Carolina found that Alden-owned newspapers were downsizing twice as fast as their competitors; It’s no coincidence that circulation has also dropped faster, according to Ken Doctor, a news industry analyst who looked at data from some of the newspapers, ”The Atlantic continued. “It might sound like a losing formula, but these newspapers don’t have to grow into sustainable businesses for Smith and Freeman to make money.

“With aggressive cost cutting, Alden can run his newspapers profitably for years to come while producing an increasingly less good product, indifferent to the subscribers he alienates. So far, Alden has limited its closures primarily to weekly newspapers, but the doctor argues it is only a matter of time before the company begins to shut down its dailies as well. “

Lee Enterprises’ plan would go into effect if Alden acquires more than 10% of Lee’s shares within the next year. According to news reports, other shareholders at this point could buy shares at a 50% discount or get free shares for every share they own.

The idea is to dilute the stock, making it more expensive for Alden to acquire a controlling stake. Alden said he already owns 6.1% of Lee’s shares. Alden offered to buy Lee for $ 141 million, or $ 24 a share, or 30% more than the value of the company’s shares.

In a statement, Lee’s chairman said the board’s plan would give him time to consider Alden’s proposal “without undue pressure while preserving the opportunity for shareholders to realize the long-term value of their investment “.

Lee Enterprises describes itself as “a leading subscription and advertising platform and a leading provider of local news and information.” It owns 77 newspapers in the United States, including historic brands like the St. Louis Post-Dispatch, the Omaha World-Herald, and the Buffalo News.

Alden has grown to become one of the nation’s largest newspaper owners and includes titles such as the Chicago Tribune and the Baltimore Sun.

Investopedia says poison pills are not always implemented to stop an acquisition. One can be adopted to obtain a higher valuation or more favorable conditions for the acquisition.