Tribune Publishing (TPUB) appears to be doing all it can to fend off an $864 million takeover bid by rival Gannett (GCI), which is fighting back with its own plea to entice Tribune shareholders.
Most recently, the company sold $70.5 million of newly issued shares to Patrick Soon-Shiong, via his Nant Capital firm, placing the billionaire ex-surgeon as Tribune's second-largest shareholder.
And the move essentially equates to "reverse greenmail," a clear indication that it has become all but impossible to pursuade Tribune's board to relinquish control of the publishing giant, a person close to the matter told Real Money in a Tuesday phone interview.
"Greenmail" is a term that originated during the hostile takeover boom of the 1980s, referring to a payout companies would have to make to fend off takeover raiders, such as Texaco's $1.3 billion payment to Bass Brothers in 1984 to recover their 9.1% stake in the company, a $137 million premium over the market price.
Tribune's practice essentially equates to reverse greenmail in that the $70.5 million shares have been offered at the same price of Gannett's rebuffed offer to a takeover-averse shareholder, the person said.
Soon-Shiong, who is slated to become Tribune's vice chairman pending a June 2 shareholder vote, is among the many anti takeover advocates recently introduced to the Tribune board, the person said, who spoke on the condition of anonymity because talks are private.
The transformation essentially began in February when Michael Ferro -- now the publisher's non-executive chairman and top shareholder -- negotiated the private purchase of 5,220,000 unregistered shares in February for $44.3 million via his firm Merrick Media, Tribune pegged its own fair value at $8.50 per share.
But now, according to a source close to the negotiations, Ferro is playing a chief role in rejecting Gannet's bid, which values the company at $15 per share -- the same value of Tribune's deal with Soon-Shiong this week.
Part of Ferro's strategy to keep Tribune's destiny within its own control, the person said, includes the reshuffling of Tribune's management with appointments including the late-February induction of Justin Dearborn as CEO in place of Jack Griffin.
Meanwhile, Gannett has been arguing that Tribune is not acting in the best interest of its shareholders, who are failing to reap the benefits of a takeover premium, which comes in at about 24% above midday trading levels Tuesday.
Shares of Tribune fell 17% Monday, partially off news of the dilutive share offering, as well as a filing by Gannett that the window for a takeover is shrinking.
"Despite repeated efforts by Gannett to engage with Tribune regarding its $15.00 per share all-cash premium offer, Tribune has continued to take actions that Gannett believes are designed to convey disproportionate control of the enterprise to select stockholders while ignoring its duties to all Tribune stockholders," Gannett said in a Monday filing with the SEC.
Cristiano Guerra, vice president of Institutional Shareholder Services, or ISS, says Gannett is urging Tribune shareholders to "withhold their votes" from Tribune's eight director nominees as a "referendum that the Tribune board should substantively engage immediately with Gannett," he said in a Tuesday report.
"The company adopted a one-year poison pill, in response to Gannett's unsolicited offer," he added, noting that witholding votes "may be appropriate" if Tribune's current management attempts to prevent shareholders from weighing and deciding on the merits of a Gannett's takeover offer.
"The company adopted a one-year poison pill, in response to Gannett's unsolicited offer," he said. "While ISS does not recommend withhold votes in these circumstances, particularly as the definitive proxy statement had already been filed. Should the pill be extended or materially altered without shareholder approval ¿ acts which would break faith with shareholders who are willing at this moment to trust the board has their best interests in mind ¿ withhold votes may be appropriate at the next shareholder meeting."
ISI also noted that given the lack of an official tender offer or clear next step in the Gannett proposal, the "starting point for negotiations is also reasonably in doubt."
"The favorability of the bid compared to the next-best alternative, remaining stand-alone under a new leadership and a new strategy, is also unclear, just three months in," he said. "Given these considerations it appears that the target board's response ¿ which has been more extensive than merely saying "no" ¿ appears to have been appropriate, leaving little reason, at this meeting, to believe withholding votes from directors, on the grounds Gannett has argued, is warranted."
- Real Money's Carleton English contributed to this report.
Larry Kramer, CEO of TheStreet, serves on the board of directors of Gannett.