Newspaper publisher Lee Enterprises is facing renewed pressure from a hedge fund to accelerate its transition to digital publishing and consider adding new digital-savvy leaders to its board after succeeding fend off a hostile takeover of another hedge fund.
Lee’s largest shareholder, Cannell Capital, revealed this week that it has purchased nearly 20,000 additional shares of the company, giving it a 9.1% stake. Fund manager Carlo Cannell said he thinks Lee needs new board members and executives with experience running a digital publishing business.
“I have some confidence in (Lee’s) management – not a lot,” Cannell said in an interview. “I have great or very little confidence in the board depending on which board member you refer to.”
Cannell Capital has been pushing Lee to make changes for several years. This includes mounting a campaign in 2019 encouraging shareholders to vote against three board members, including Lee chair Mary Junck, and announcing last September that she planned to vote against all outgoing members of Lee’s board of directors.
Cannell Capital and another hedge fund that has a large stake in Lee, Praetorian Capital, also questioned how much Lee spent on advisers as he fended off a $24-per-share takeover bid from a another hedge fund, Alden Global Capital. But the investor who leads Praetorian, Harris Kupperman, has indicated he is more comfortable with the company’s current direction.
Cannell estimated that Lee spent between $3 million and $5 million on the advice of investment bankers and lawyers during the proxy battle with Alden — an amount he says might have been better spent on company journalists. Kupperman agreed.
“I think the shareholders would have voted for the current guys, and they could have saved a few million dollars,” Kupperman said.
Lee publishes dozens of newspapers, including the St. Louis Post-Dispatch, Buffalo News, Omaha World-Herald, and almost every other daily newspaper in Nebraska. The chain grew significantly in 2020 when it bought all of Berkshire Hathaway’s newspapers and Warren Buffett endorsed Lee as the publications’ best long-term steward.
Lee executives have defended the progress they are making in the company’s digital transition. Representatives for Lee declined to answer questions from Cannell on Thursday, but the company will update investors again next month when it releases its next earnings report.
Lee said last quarter that it had 450,000 digital-only subscribers and expects that number to grow to 900,000 by 2026. The Davenport, Iowa-based company said that its digital ad and subscription revenue had risen 17%, though its profit in the three-month period that ended Dec. 26 fell nearly 20% to $13.2 million.
Kupperman said he was making a long-term investment with his 7.3% stake in the company and he believes Lee is “on the right track in terms of digital subscriber growth.”
The pressure on Lee isn’t likely to let up any time soon, said Tim Franklin, senior associate dean of Northwestern University’s Medill School of Journalism and former president of the Poynter Institute, a media think tank and nonprofit owner in Tampa. Bay Times. He noted that hedge funds are not known for their patience waiting for companies to increase their stock prices or profit margins.
But he said Lee – like all print media companies – is in the midst of the difficult transition from reliance on revenue from print publishing to digital. The newspaper industry has been shrinking for years as more readers go online and companies scale back their print ads.
“All news outlets, including Lee, are trying to strike a balance by preserving as much of their print revenue as possible while trying to grow their digital revenue,” Franklin said. “And it must be done with great delicacy, because the fate of news outlets may hinge on success.”
Lee fought hard against Alden’s takeover bid because the New York-based hedge fund has a reputation for forcing extreme cost cuts and deep layoffs on newspapers it owns. which includes all the Tribune newspapers he bought in the last year.
Alden did not say what its plans are for its 6.3% stake in Lee after its failed takeover bid, and an Alden spokeswoman did not respond to questions this week. The other two hedge funds with larger stakes in Lee said they believed the company was worth much more than Alden was offering.
Rick Edmonds, Poynter’s media analyst, said it appears investors expected either Alden to increase its offer or a bidding war to break out because Lee’s share price soared. to $44.43 at the start of this year before falling back to $25.51 on Thursday. This could open the door to another potential buyer.