• by Tony Silber , Staff Writer, December 17, 2021

Here’s the latest twist in the Lee Enterprises-Alden Global Capital saga, and here’s my take: This might look like a bitter dispute, but if you read between the lines, there is a significant element of posturing.

Each side is putting pressure on the other in the interest of getting the best price. A the same time, they’re carefully signaling certain negotiating positions.

An investment group affiliated with Alden — the notorious hedge fund that’s buying up newspapers — is suing the newspaper chain Lee Enterprises and the individual members of its board of directors for allegedly infringing on shareholder rights by rejecting Alden’s bid to nominate board candidates.

The group, Strategic Investment Opportunities LLC, filed the suit on Wednesday in the Delaware Chancery Court. As of November, the suit states, the group owned 6.3% of Lee Enterprises’ common stock.

The dispute stems from Alden’s attempt last month to nominate three members of the Lee board at its 2022 annual meeting. The Lee board rejected the bid on December 3, calling it a “hasty and convoluted attempt to work around our simple and common procedure.”

The board dispute is part of Alden’s attempted hostile takeover of Lee, which owns 75 daily newspapers and over 350 weekly and specialty publications serving 77 markets in 26 states. Alden’s cash offer was for $24.00 per share, or about $141 million. At the time, the offer represented a premium of 30% over the stock price when the offer was made. Lee stock subsequently surged, and is trading close to $40 in recent days.

Last week, Lee’s board unanimously rejected the Alden bid saying it “grossly undervalues” the company. In Wednesday’s lawsuit, Alden said the offer “was designed to be a preliminary proposal, with the goal of opening a dialogue to engage constructively with the company.”

In the suit, Strategic Investment Opportunities claimed Lee breached its bylaws, and the director defendants breached their fiduciary duties in an effort to prevent stockholders from having a say on Lee’s future, via the election of directors at the next annual meeting.

A bylaw modification adopted in 2019 made the nomination process “substantially more burdensome than those adopted by other public companies and have no justification other than to place obstacles around stockholder nominations,” Strategic claims in the suit.

“It is a sign of the company’s poor performance on corporate governance metrics when it has a classified board (meaning some members serve for longer terms than others) in place, along with its other structural defenses. It is, therefore, a red flag as to whether a board’s motivations are legitimate when a classified board, such as Lee’s, adopts bylaws that deviate far from the norm.”

Two of the eight defendant board members, Chairwoman Mary E. Junck and Herbert W. Moloney, have been on the board for two or more decades, the suit claims, and two of the three up for election in 2022 — Junck and Kevin D. Mowbray — are longtime insiders and “have every reason to maintain the status quo and their lucrative corporate positions.”

In response to the suit, a Lee spokesperson said: “As we explained in detail on December 3, Alden’s director nomination notice was clearly invalid and we remain committed to acting in the best interests of all shareholders. Alden’s claims are baseless.”

In the end, the board of directors' dispute is about Alden obtaining leverage on the Lee board, but it’s also a sideshow to the real negotiation. When Lee said Alden’s bid “grossly undervalues” the company, the clear implication is that there’s an offer to be made that does not grossly undervalue it. And Alden’s response on Wednesday also was a signal: The $24 per share price was the opening volley, not the final offer.