Lee Enterprises rejects offer from Alden, touts its growth potential

Lee Enterprises continues to fight the hostile takeover bid from Alden Global Capital. Its Board of Directors rejected Alden’s bid of $24 per share after denying its bid to nominate three directors, citing its procedural errors.

In late November Lee said its board adopted a limited-duration shareholder rights “poison pill” in response to Alden’s bid.

The decision to ultimately reject the offer was best summed up in Dec. 8 letter to the Board from Harris Kupperman, who controls 7.33 percent of Lee stock – making him the second largest shareholder behind J. Carlo Cannell.

“Let me be blunt. I simply do not understand what needs to be evaluated here,” Kupperman wrote. “Alden’s proposed purchase price is clearly insufficient and opportunistic, grossly undervaluing the business. Furthermore, their proposal comes precisely as the digital business transformation gains momentum, dramatically unlocking value for long-suffering shareholders. In order to save the company a fortune in investment banker and advisory fees, I want to state in the clearest possible way that I emphatically refuse to tender any shares at $24, nor will I tender any shares at a price even remotely close to today’s price. Additionally, I intend to retain legal counsel and protect my investor’s rights should the Board agree to sell the company at a price that I deem to be insufficient.

“I believe the shares are worth north of $100 today and likely worth a few hundred each if the digital transformation continues at the current pace. The only reason that the shares trade where they do, is that investors have yet to realize that while the traditional print newspaper business slowly declines, the digital business has been growing rapidly, becoming an increasingly substantial percentage of the total business. Based on third quarter, 2021 numbers, LEE’s digital business grew revenue by 48.3% over the prior year, with digital subscriber count growing by 50.5%. A full 33.4% of the company’s revenue and almost half of the company’s adjusted EBITDA now comes from this rapidly growing digital business. I believe that by 2023, approximately half of revenue and two-thirds of adjusted EBITDA will come from the digital business.”

We’ll have to see if Alden persists in its effort to take over Lee. During the Dec. 9 earnings call with investors. Lee CEO Kevin Mowbray declined to answer questions about Alden’s bid.

The company highlighted a laundry list of positives, including:

  • Total operating revenue increased for the second consecutive quarter.
  • Digital-only subscriptions at the end of the quarter totaled 402,000, or up 65% compared to the same period last year. The company has set a target of 900,000 digital subscriptions within five years.
  • Total digital revenue, including digital advertising, digital subscription and digital services revenue, was $66.5 million and represented 34% of total operating revenue. Total digital revenue increased 37% in the quarter and 34% year over year.
  • Amplified revenue totaled $12.0 million in the quarter, a 71% increase from the same quarter last year. Amplified’s annual revenue increased to $42 million.
  • Video revenue in the quarter grew to $2.1 million, a 213% increase over last year.
  • Revenue at TownNews, the content platform, increased 8% in the fourth quarter and revenue for the full year totaled $27.2 million.
  • Lee paid down its debt by $56 million in the last fiscal year.
  • Lee has $30 million in assets for sale. Those sales revenues will go toward paying down debt.
  • Lee made no pension contributions in the fourth quarter and contributed $965,000 for FY2021. As our pension plans are fully funded in the aggregate, we do not expect any material pension contributions in FY2022.

The latter point was the result of an agreement with the United Media Guild that allowed the Pulitzer Pension Plan to be managed under the same umbrella with other pension funds controlled by Lee. That agreement, which came through our latest contract negotiation, will save Lee considerable money over the next several years.