A large minority of participating shareholders at Tribune Publishing (TPUB) on Thursday voted against the company's directors - in a move that could drive the Chicago-based media company to consider an $864 million hostile bid made by USA Today publisher Gannett (GCI) - Get Report
Gannett issued a statement noting that about 49% of shares not affiliated with Tribune Publishing or its non-executive chairman, Michael Ferro, voted against the media company's slate of director nominees. Ferro's investment vehicle owns a 16.5% stake. Tribune Publishing issued a statement noting that based on preliminary voting data all of Tribune Publishing's directors were re-elected to the board noting that "the majority of our voting shareholders agree."
The vote had no binding impact on the company's management or board. However, the large negative vote against Tribune Publishing's directors - even though it is a minority of participating shares -- could send a strong message that shareholders wanted the two sides to engage in discussions about a combination.
However, even with a large minority vote of support it is unclear whether Gannett will continue to pursue a deal. It said in its statement that it is reviewing whether to proceed with its acquisition offer, taking into account the results of the vote at the meeting and the latest Tribune actions.
The vote of support for Gannett's bid by a large minority of shareholders comes after a small shareholder filed a lawsuit early Thursday seeking to halt a recent sale of a 12.9% stake to Nant Capital founder Patrick Soon-Shiong, a California-based billionaire investor and friend of Tribune Publishing's non-executive chairman. Soon-Shiong was also invited onto the media company's board as vice chairman, a role he was expected to take on Thursday.
Nevertheless, the vote of a majority of shareholders for Tribune Publishing's board - including Tribune Publishing insiders -- did send a message that the two major proxy advisory firms, Institutional Shareholder Services and Glass Lewis, carried a lot of weight in the outcome. Last month, ISS and Glass Lewis recommended that shareholders back Tribune Publishing's board. The two proxy advisers recommendations likely influenced some large institutional investors, such as BlackRock, Vanguard and State Street (STT) - Get Report , all of which own significant stakes in the company. Their specific votes have not yet been disclosed.
Glass Lewis waded into the debate with a report charging that Gannett has offered "insufficient cause for investors" to support its current campaign and that Tribune Publishing's board "is well positioned to fully evaluate and reject any bids that seem particularly opportunistic." ISS suggested that based on its analysis that the revised bid still "materially underrepresented the intrinsic value of the company."
The large vote of no confidence by shareholders may be tampered a bit by the fact that at least two large disgruntled investors held large blocks of shares and have urged the media company to engage in negotiations with Gannett. Asset manager Oaktree Capital Group, which owns a 15% stake, on May 6 reported in an activist securities filing that it was urging the media company to "pursue discussions" with Gannett. In addition, Towle & Co., which owns a 4% stake, charges that Tribune Publishing has "abandoned its fiduciary responsibility."
On the other side of the battle, Tribune Publishing's non-executive chairman Michael Ferro, through his investment vehicle, accumulated a 16.5% stake in the media company in February, a deal that some shareholders consider to be an illegal effort to thwart Gannett's hostile bid. In addition, Nant Capital's Soon-Shiong last month made a $70.5 million investment in Tribune Publishing in exchange for a 12.9% stake and a board seat, a move also considered by some to be a blocking stake even though it was not permitted to participate in the vote Thursday.
Tribune Publishing could also be driven to the negotiating table as a result of the lawsuit, filed in Delaware Chancery Court on Wednesday charging Ferro, CEO Justin Dearborn and the investor Soon-Shiong with acting in the interest of personal gain rather than that of shareholders. The lawsuit, filed by Capital Structures Realty Advisors alleges that Ferro sought to entrench himself at Tribune when the company's board issued 4.7 million new shares in the company to Soon-Shiong.
In addition to seeking the halt of the stock sale to Soon-Shiong, the suit seeks to have Tribune Publishing set up a special committee of independent directors to consider Gannett's offer. It also seeks to have the media company "reform" its governance to "prevent outsized control and influence by defendant Ferro."
A person familiar with the situation noted that Capital Structures Realty Advisors owns a stake in Tribune Publishing and is not affiliated with Gannett. It is possible that some other shareholders could file their own lawsuits, in a move that would ultimately result in a consolidated case. Gannett, for example, owns 1,100 Tribune Publishing shares as of a May 16 securities filing, and could file a suit of its own. In addition, it is possible that Oaktree or Towle, the two disgruntled large shareholders, could file their own lawsuits.