Tribune Publishing, Chairman Ferro sued by shareholder
Tribune Publishing Co.’s board of directors was sued Thursday by a shareholder, who claims the Los Angeles Times publisher has breached its fiduciary duty to maximize shareholders’ value in turning down Gannett Co.’s offer to acquire the company.
The lawsuit, filed by Capital Structures Realty Advisors, names Tribune Chairman Michael Ferro, Tribune CEO Justin Dearborn and other board directors as defendants. It came hours before Tribune is scheduled to hold its shareholder meeting in Los Angeles at a law firm. And the legal fight, which had been predicted by some analysts, could put additional pressure on other shareholders, who will vote on eight Tribune directors who have been nominated by the company.
“Tribune Publishing just received a copy of the complaint and is reviewing it carefully,” Tribune said in a statement.
Gannett, which owns Paste BN and other local media properties, has asked shareholders to withhold their votes, lest the new board would assent to Ferro’s desire to quash Gannett’s $15-per-share offer.
Last month, Gannett raised its offer to buy Tribune from the initial $12.25-per-share bid that was sent to Tribune’s management in mid-April. The revised offer values Tribune at about $479 million. Gannett also offered to assume about $385 million of Tribune’s debt, valuing the total deal at about $864 million. The heightened offer represents a premium of 99% to Tribune’s closing price of $7.52 per share on April 22, the last trading day before Gannett publicly revealed its offer.
Tribune, led by Ferro, who’s also the largest shareholder, rejected both of Gannett’s offers, preferring to implement its own digital-centric strategy for growth.
To defend Tribune against Gannett’s attempts to buy it, Ferro also implemented a “poison-pill” strategy — that would dilute Tribune’s shares if a company buys more than 20% — and persuaded a white-knight investor, Los Angeles-based billionaire Patrick Soon-Shiong, to buy a 13% Tribune stake at $15 per share.
Ferro and Soon-Shiong now own about 30%. Soon-Shiong and his investment entity, Nant Capital, were also named as defendants in the lawsuit for “aiding and abetting that breach," the lawsuit reads.
“Plaintiff brings this action to prevent and unwind the preclusive entrenchment transaction (Tribune) entered into with defendant Soon-Shiong for improper reasons and for the damages caused thereby,” the lawsuit reads.
Some shareholders, including Oaktree Capital Management and Towle & Co., have urged Tribune to negotiate with Gannett for a possible deal.
Ferro, a Chicago-based businessman who made his fortune in e-commerce and health care, bought about 17% of Tribune through his investment firm, Merrick Media, on Feb. 4 for $8.50 a share, and gained control of the board. He then removed Tribune’s CEO, Jack Griffin, and replaced him with his longtime business associate Dearborn.
Ferro also enlarged the board in April to 10 members from seven with new members. Eight of the members, including the most recently joined members, are up for election Thursday.
“The stock sales to Merrick Media and Nant Capital were approved by the board of directors and will provide valuable growth capital to allow the company to execute on its new value-creating business plan,” Tribune said.