Investors Lambaste Tribune|for Rejecting Gannett’s Buyout Offer

(CN) — Tribune Chairman Michael Ferro solidified his control of the board by selling 13 percent of the company to a close associate, but shareholders lost out on an acquisition deal that offered a 99 percent premium, they claim in court.

The Chicago Tribune, Los Angeles Times and Baltimore Sun are all titles under Tribune Publishing Co., the third-largest newspaper publisher in the United States.

While Tribune shares were trading at around $7.50 in mid-April, the publisher received an unsolicited takeover offer from Gannett Co., which owns USA Today.

The initial offer of $12.25 per share would have been a rich premium for shareholders, but Gannett even sweetened the deal to $15 per share.

Despite representing a 99 percent premium for shareholders based on the April trading price before Gannett announced its first offer, this offer was also rejected as inadequate.

Tribune Chairman Michael Ferro instead said "there's no price" for which he would sell the company. He indicated he intends to make a bid to acquire Gannett instead.

On Thursday, Ferro announced the Tribune will change its name to Tronc, stylized with a lowercase t, and move its stock listing to the Nasdaq. The name is short for Tribune online content.

That same day, Capital Structures Realty Advisors filed a derivative action in Delaware Chancery Court against Ferro and other officers.

"Tribune Publishing just received a copy of the complaint and is reviewing it carefully," Tribune said in a statement.

Capital Structures says Ferro is "not interested in negotiating with Gannett."

"Instead, he looked for ways to silence the dissident stockholders' voices," the complaint states.

Ferro achieved this by issuing 4.7 million shares to Patrick Soon-Shiong, giving him 13 percent of the company, "massively diluting the company's ordinary stockholders in the process," according to the complaint. Soon-Shiong is a named defendant.

"The transaction with defendant Soon-Shiong was done for only one purpose, to entrench the Board," Capital Structures says. "Ferro was searching for a like-minded large stockholder to blunt the substantial momentum building behind Gannett's offer and its campaign to urge stockholders to 'withhold' their support for the existing Board members at the upcoming annual meeting."

Indeed, Soon-Shiong cannot sell his share of the company for more than $15 per share within the next six months due to the Exchange Act's prohibition on short-swing profits.

Capital Structures described Soon-Shiong as a "white knight," who supports Ferro's position that a newspaper is not a business like any other, but a "public trust." Soon-Shiong has said, "I recognize the press is a very valuable tool for the community, where it really adds to democracy."

Ferro has made similar comments about his motivation for chairing Tribune Publishing. He said in an interview published by the Tribune that "it's not just about making money," and that he believes journalism is the fourth branch of government.

Capital Structures argues that by running the business in this manner, Ferro has violated his fiduciary duty to maximize shareholder value.

"Despite calling Gannett's offer of $15 per share inadequate, the Board then agreed to sell 13 percent of the Company to Soon-Shiong for that very same price," the complaint says. "Because the Board agreed to the sale to defendant Soon-Shiong in order to entrench itself, and in breach of its duty of loyalty to the Company, it will have the burden of proving the entire fairness of the transaction. It will be unable to do so here."

Capital Structures seeks expedited litigation to ensure Gannett does not walk away from the deal. It asked the court to rescind the stock sale to Soon-Shiong, and install a special committee of independent directors to consider Gannett's offer for Tribune.

It is represented by Blake A. Bennett with Cooch and Taylor in Wilmington, Delaware.

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