Tribune twists governance to wager investors’ cash

May 24, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Michael Ferro is gambling with Tribune Publishing shareholders’ money. The chairman of the Los Angeles Times publisher has rebuffed Gannett’s improved offer to buy the company. Instead, he has tapped the deep pockets of L.A. billionaire Patrick Soon-Shiong for a $70.5 million investment. The move just might draw a higher offer. But a poison pill and other blocking tactics mean Tribune investors could easily be stuck, powerless, with a declining asset.

Tribune turned its nose up at Gannett’s earlier offer, too. Rather than engage enthusiastically with the latest $15-per-share cash price, valuing the company at $864 million including debt, the Tribune board struck an agreement with Soon-Shiong that’s a bit like the one it did with Ferro in February. For the same price as Gannett is proposing, the L.A. Lakers stakeholder is getting a nearly 13 percent interest and a spot as vice chairman.

Collectively, Ferro and Soon-Shiong own about 30 percent of the company that also publishes the Baltimore Sun and the Chicago Tribune. The publisher has a poison-pill defense against hostile takeovers that triggers a dilutive rights plan if an investor accumulates 20 percent or more – but their stakes don’t individually reach that threshold.

There are other more subtle signs that Ferro has no desire to give up ownership. While Tribune says it is open to discuss a possible transaction with Gannett, it is asking the USA Today publisher to open its books for a two-way due diligence process that seems at odds with a simple all-cash transaction. It also wants restrictions that Gannett says would make it difficult to go hostile for up to two years.

Gannett has asked Tribune shareholders to vote against the company’s director nominees at next week’s annual meeting but missed the deadline to launch a more substantial campaign. Advisory firm ISS is behind Tribune on this issue, partly because Gannett hasn’t put a firm bid on the table. But the proxy adviser gives Tribune its lowest corporate governance grade overall.

The first time Tribune sent Gannett packing, it noted the board’s unanimity. That language is missing this go-around. It’s a sign perhaps that other shareholders may get a say eventually. For now, Ferro has managed to keep their fate in his hands. They may regret that: ISS notes that he didn’t do so well running the Chicago Sun-Times across town.

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