Nearly a week after Lee Enterprises rejected Alden Global Capital’s bid to buy the media company, the hedge fund responded Wednesday with a lawsuit accusing Lee’s board of improperly refusing shareholders the opportunity to have their say on the offer.
Lee, owner of the Sioux City Journal and daily newspapers in Iowa and Nebraska, rejected Alden’s offer to buy the company for $24 a share, or about $141 million, last Thursday because the the company’s board decided that the offer “significantly undervalued” the company.
But Alden argued in his lawsuit that Lee, based in Davenport, Iowa, should not have rejected his offer without telling the hedge fund. Alden also said Lee should not have refused to accept his appointment of three outside directors for technical reasons, so he wants the court to order Lee to accept those nominees.
“Lee’s shareholder-unfriendly, staggered board has shown all the symptoms of deeply entrenched leadership focused more on its own power than on what’s best for the company,” the spokesperson said. Alden, Cameron Gurley.
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Lee officials did not immediately respond to questions about the lawsuit Wednesday afternoon. But the company has been firm so far in its opposition to Alden.
The New York-based hedge fund, which owns 6.3% of Lee’s shares, became one of the largest newspaper owners in the country after gobbling up all of Tribune’s newspapers earlier this year, but it also acquired reputation for forcing severe cost cuts and layoffs.
Two other hedge funds that are among Lee’s top shareholders, Praetorian Capital and Cannell Capital, said they believe the company is worth far more than Alden is offering.
“I think there’s still tremendous value,” said Carlo Cannell, managing director of the Wyoming-based fund. In fact, Cannell estimates that Lee’s stock could be worth $285 per share within five years if the company does everything right as it continues to shift more to digital than print.
Alden said in his lawsuit that he wanted his $24 offer to be preliminary, and that it could have been changed had the company engaged in constructive talks. Lee’s stock gained another 12% on Wednesday to close at $40.53 before the lawsuit was announced. Before Alden made its initial offer, the stock was selling for $18.49.
Even before Lee rejected Alden’s offer, he enacted a “poison pill” plan that would make it more expensive for Alden to buy out Lee’s stock once he owns more than 10% of the company. At this point, the plan would allow other Lee shareholders to buy shares at a 50% discount or possibly get free shares for every share they already own.
Lee owns the St. Louis Post-Dispatch, the Buffalo News and dozens of other newspapers.
Unions that represent journalists at these newspapers have strongly opposed Alden because they are concerned about what the hedge fund would do.
Among his other Nebraska newspapers are the Omaha World-Herald, Grand Island Independent, North Platte Telegraph, Kearney Hub, and Scottsbluff Star-Herald.
Alden has purchased about 200 publications across the country in recent years through a series of acquisitions. Besides the Tribune newspapers, Alden also owns the Denver Post, the Orange County Register and the Boston Herald.