Sinking revenues force more Lee Enterprises cutbacks, draw shareholder scrutiny

Feb 7, 2019 by

The good news for Lee Enterprises: The company continues paying down its onerous debt at an accelerated rate.

The bad news for Lee: Revenues keep declining, prompting cost-cutting that diminishes journalism content, its core product. The company is also drawing the ire of at least one activist shareholder.

United Media Guild members have felt the brunt of this cost-cutting in several ways:

  • Another round of buyouts is underway at the St. Louis Post-Dispatch. The company is seeking to reduce payroll yet again and we could see more layoffs if the company doesn’t get enough volunteers.
  • The Post-Dispatch building has been sold and the new owner wants to clear the building for renovations. So P-D, which now rents from the new owner, will be moved to another building one block to the east.
  • Negotiations for a first contract for our new members at the Southern Illinoisan have gone slowly. The company has been unwilling to agree to some basic layoff protocols that have worked fine elsewhere.
  • Meanwhile the printing operation at the Southern Illinoisan in Carbondale is closing. The newspaper will be printed by the Post-Dispatch, change that will move up deadlines and knock key content (night meetings, Southern Illinois University sports, high school game coverage) out of the printed product.

Against this backdrop, Lee Enterprises is under attack from Carlo Cannell and his Wyoming-based Cannell Capital. He is urging shareholders to vote against incumbent board members, including chairman Mary Junck.

His complaints are familiar: Lee dramatically overpaid for the Post-Dispatch, Junck has earned more than $40 million of compensation since 2002 despite the company’s free fall, and the current board of directors has a friends-and-family vibe.

He also cited the unwillingness of Lee to go all-in on a digital transformation ala the New York Times. But in fairness to Lee, digital transformations have yielded disappointing results beyond a few major outlets with national audiences.

Most of Lee’s properties are in mid-sized and small markets, where the print product has staying power and the digital potential is somewhat limited. Lee has done a better job detaining print revenue than some rival chains.

Cannell’s complaint didn’t reveal much insight into this distressed industry. Still, he told CorpGov.com that his actions have drawn inquires from private-equity groups.

That is notable. Might this be the start of a hostile bid for the company?

The consolation of the newspaper industry is ongoing. Lee recently bought the Kenosha News and Lake Geneva Regional News, two Wisconsin properties that are a good fit for the company.

Gannett recently fended off a bid from the company that controls Digital First Media, a chain that shamelessly plunders newspapers for cash flow. GateHouse Media, which owns UMG-represented Illinois newspapers in Springfield, Pekin, Peoria and Rockford, has also remains in acquisition mode.

To combat Cannell’s attack, Lee is spending an additional $425,000 to solicit proxy votes. The UMG is monitoring the situation and we plan on attending next week’s shareholders meeting in Davenport, Iowa.

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