Newspaper Chain Lee Enterprises Wins Round Against Hedge Fund -- But Fight Might Not Be Over

The ongoing battle for control of Lee Enterprises took another turn on Tuesday morning, when the newspaper chain announced  the Delaware Chancery Court had ruled that Lee was justified in rejecting nominees from the hedge fund Alden Global Capital to Lee’s board of directors.

In the decision, the court ruled that Lee’s board “acted reasonably in enforcing a validly adopted bylaw with a legitimate corporate purpose.” It said that Alden “could easily have met the bylaw’s form requirements had it not delayed” in preparing its nomination notice.

Lee in late November tartly dismissed what it called a “purported notice” by Alden nominating three members to the Lee board in an election to be held at its 2022 annual meeting in March.

“Early last week, Lee promptly and properly denied a request from Alden seeking certain nomination materials because Alden failed to comply with the clear and substantive requirements of Lee’s bylaws,” the company said in a press release.



The Lee board officially rejected the nomination bid on Dec. 3, calling it a “hasty and convoluted attempt to work around our simple and common procedure.” Alden responded on Dec. 15 when an affiliated group, Strategic Investment Opportunities LLC, filed the suit in the Delaware Chancery Court. As of November, the suit stated, the group — and by proxy — Alden — owned 6.3% of Lee Enterprises’ common stock.

The upshot of the court’s decision is that Alden’s nominees will be disregarded in the March 10 vote, Lee said in a press release.

“We are pleased that the Delaware Court of Chancery has affirmed the importance of orderly annual shareholder meetings and confirmed the decision by the Lee board of directors to reject as invalid the notice of nominations delivered by Alden,” the Lee board said in the statement. “Based on the ruling of the Vice Chancellor, Lee will not recognize Alden’s nominations, and any proxies submitted, or votes cast, for the election of Alden’s director candidates.

“We urge shareholders to vote for all three of Lee’s proposed nominees — Mary E. Junck, Herbert W. Moloney and Kevin D. Mowbray — at our annual meeting to support the continued execution of Lee’s digital growth strategy.”

The Delaware court decision represents a big win for Lee, but it’s hard to say whether the company will prevail in the long term. Alden, widely known in the newspaper industry as a “vulture capitalist” firm, has been buying up newspaper chains and stripping them of resources. It acquired Tribune Company last year and now owns more than 200 newspapers. It launched a hostile takeover bid of Lee — which owns 75 daily newspapers and over 350 weekly and specialty publications — in November.

Alden’s cash offer was for $24 per share, or about $141 million. At the time, the offer represented a premium of 30% over the stock price of around $18 per share when the offer was made. Lee’s board unanimously rejected the Alden bid, saying it “grossly undervalues” the company. Alden said the offer “was designed to be a preliminary proposal, with the goal of opening a dialogue to engage constructively with the company.”

After the Alden offer, Lee’s stock subsequently surged, getting as high as $43. It is currently trading in the $36 range.

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