In the fight for control of Gannett Co., a detail emerged Tuesday that shines new light on the proxy battle for the owner of USA TODAY and more than 100 other media properties.
Before attempting a hostile takeover of USA TODAY’s owner, MNG Enterprises Inc. repeatedly floated the idea to Gannett officials that company should acquire its MNG’s newspapers, which operate as Digital First Media, according to a regulatory filing by Gannett on Tuesday.
MNG representatives including Heath Freeman, vice chairman of MNG and president of hedge fund Alden Global Capital, approached Gannett repeatedly since 2015 when Gannett and Tegna Inc. spun off into separate companies, with suggestions that Gannett should consider buying MNG’s holdings, Gannett said in the filing.
Gannett made the disclosures in an annual proxy statement filed with the Securities and Exchange Commission. The document includes advice to shareholders on measures that will be considered at the corporation’s annual meeting in May.
The filing came after MNG nominated six director candidates to Gannett’s board following Gannett’s decision to reject MNG’s unsolicited bid to acquire Gannett for $12 per share. MNG’s nominees include Freeman, MNG Executive Chairman R. Joseph Fuchs, MNG Chief Operating Officer Guy Gilmore, former MNG President Steven Rossi, Freightquote.com Inc. founder Timothy Barton and The Cogent Group Principal Dana Goldsmith Needleman.
Gannett said MNG made the casual overtures at industry events and in private meetings with board members until just weeks before MNG launched its unsolicited bid.
Earlier this month, MNG disclosed that it had discussed with Gannett the possibility of “a potential strategic combination” in the past, but didn’t reveal that it had discussed being acquired.
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When approached at industry events, Gannett CEO Robert Dickey and Chief Financial Officer Alison Engel “replied that the Company was not interested in pursuing an acquisition of MNG at the time,” according to the filing.
In December 2018, Larry Kramer, a director of the company and former president and publisher of USA TODAY, had breakfast with Freeman, during which they spoke about the newspaper industry. At the end of the meeting Freeman “casually suggested that a combination might benefit both companies,” Gannett said in the filing. Kramer referred Freeman to board chairman John Jeffry Louis III.
Days later, Martin Wade, a member of MNG’s board, and Louis met in a pre-arranged meeting not related to the Kramer’s meeting with Freeman, Gannett said. Wade made a similarly casual mention of a possible combination of the companies, Gannett said.
Louis responded to Wade “that he would be willing to have a conversation on the possibility of a combination, but that he did not want to interrupt the Company’s CEO search process at that time,” and “Wade indicated that he thought the desire to avoid an interruption in the search made sense” and suggested a 2019 meeting between Louis and Freeman to discuss the matter, according to Gannett. Dickey recently announced that he would retire effective in May, and the Gannett board is continuing a search for his replacement.
Weeks after the Louis-Wade meeting, MNG disclosed a 7.5 percent stake in Gannett and announced its unsolicited bid to acquire the company.
Gannett suggested in a letter to shareholders Tuesday that MNG “is using its proposal as a ploy to open discussions” about a possible Gannett acquisition of MNG. MNG declined to comment on the discussions with Gannett officers and board members.
“Given these facts, Gannett continues to question whether MNG is in fact a buyer or a seller,” Gannett said in a letter to shareholders.
Gannett on Tuesday officially recommended that shareholders reject MNG’s nominees.
MNG, also known as Digital First Media, said in a statement Tuesday to USA TODAY: “Gannett’s Board is running on its track record of value destruction and declining profitability, and on a risky digital transformation plan that cannot compete with the immediate value that would be provided by MNG’s all-cash, premium proposal of $12 per share or any higher offer that may emerge. We believe our fellow Gannett shareholders deserve a board that is committed to running a full and fair process to maximize value now before further value is lost and any current premium is squandered and that is qualified to successfully run the business in the interim.”
Gannett reiterated Tuesday its previous statement that MNG has failed to arrange deal financing for its proposed deal to acquire Gannett and has failed to “answer basic questions regarding how it would overcome likely antitrust and pension issues.”
MNG has cited a letter it received from Oaktree Capital Management saying it “is highly confident” that the deal could be arranged using at least $1.725 billion in debt financing.
Douglas Arthur, a stock analyst at Huber Research Partners, who tracks Gannett, said it’s possible that MNG wants to get out of the newspaper business.
“They are probably looking for an exit strategy,” Arthur said Tuesday in an email. “How do the investors get out and at a profit?”
Digital First Media has come under scrutiny for heavy cuts at its newspapers, such as The Denver Post. The company has said it can do a better job running Gannett than current management has.
Gannett, which owns USA TODAY and 109 local publications as well as various digital marketing assets like ReachLocal, has said it remains confident in its plan to continue building its digital revenue.
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“Your board believes that MNG’s nominees would not bring any additive skills or experience to the Gannett board,” Gannett said in Tuesday’s letter. “Additionally, your board is cognizant of Alden’s history of engaging in transactions that have destroyed value while lining the pockets of Alden and its affiliates, including, at MNG, stripping newspapers of certain assets while paying Alden generous management fees. Your board believes that MNG’s nominees are being put forward simply to advance Alden’s goal: to enrich itself at the expense of Gannett’s shareholders.”
Gannett said Tuesday that it would hold its annual stockholders meeting at 8:30 a.m. May 16, when shareholders will cast ballots on the nominees.
Gannett shares rose 1.5 percent Tuesday to close at $10.45.
Gannett has said that one key reason why MNG’s proposed board nominees are not acceptable is because of their ties to Alden.
Major companies that issue advisory opinions for shareholders on corporate proxy fights to date have not issued any recommendations for the escalating battle. However, some have issued general guidelines.
For instance, Glass Lewis’ 2019 guidelines state that board members “should be wholly free of identifiable and substantial conflicts of interest, regardless of the overall level of independent directors on the board.”
“In assessing the independence of directors, we will take into consideration, when appropriate, whether a director has a track record indicative of making objective decisions,” the guidelines also state. “Likewise, when assessing the independence of directors we will also examine when a director’s track record on multiple boards indicates a lack of objective decision-making.”
Contributing: Kevin McCoy
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.