Tribune Investor Blasts 'Self-Interest' of Company Leadership

Another major investor in Tribune Publishing lacks confidence in company leadership to undertake the "gut-wrenching transformation" necessary to preserve the company.

Towle & Co., the sixth largest shareholder, blasted Michael Ferro and Tribune Publishing leadership in a public letter to the Board of Directors: "... your brazen efforts of late have disrupted our belief in fair play. We now believe your primary interest is self-interest."

Towle wants Tribune to seriously consider Gannett's buyout offer, now pegged at $864 million, saying it's in the best interest of shareholders.

"They’re trying to steal the company, bum-rush us," he told the L.A. Times.

Towle, an investment firm based in St. Louis, joins Oaktree Capital as major shareholders calling for a sale and expressing no confidence in Ferro or his strategy. Ferro has been moving to block the Gannett bid and thwart the desires of investors who want to sell, issuing $70.5 million in stock to Nant Capital and putting Nant founder Patrick Soon-Shiong, an L.A.-based billionaire scientist, surgeon, technologist and futurist, on the board as vice chairman.

Soon-Shiong envisions a day when a reader can wave a camera over a printed newspaper, with the ink triggering videos and other multimedia to play. (Why you'd need paper to activate video on your smartphone or your not-yet-developed smart-glasses isn't clear.)

Ferro wants the L.A. Times to become a global media juggernaut in entertainment news. He also wants to beat Facebook and Google at their own game using "artificial intelligence."

(By the way, if the Tribune has trouble dropping a newspaper at the end of your driveway, here's the number to call: 1-800-TRIBUNE.)

Here is Towle's letter:

Dear Board of Directors:

There is no joy expressed at Towle & Co. in forwarding the enclosed message to you. We are saddened by the hostile environment that has erupted between Tribune Publishing and Gannett. Our expectation is that both parties will act in the best interests of their shareholders, employees, and customers.

Towle & Co. continues to control 1.4 million shares or 3.85% of Tribune’s common stock including the recent dilution. We requested in our letter of May 18, 2016 (see attached) that the Tribune Board of Directors open discussions with Gannett utilizing their $15 per share offer as a “viable starting point to quickly negotiate a final transaction price.” To date, this action has not occurred. Our letter of May 18, 2016 was addressed to the Board of Directors of Tribune only. In light of recent, disturbing developments, we now feel the need to share our views publicly.

From our view as an unaffiliated shareholder, the Tribune Board of Directors has abandoned its fiduciary responsibility of maximizing shareholder value. You have shrugged off the sincere interest of Gannett in the potential purchase of Tribune Publishing. We are greatly perplexed at your unreasonable, capital destructive position. As we write this letter, Tribune stock is down 15% to less than $12 a share.

The gut-wrenching transformation of newspapers to the digital age is complex and difficult. Our concerns persist that Tribune’s revenue and earnings will decline in coming quarters. Such a result will likely weaken support for the company by the investment community. It may take a number of years to establish a pattern of revenue and earnings growth. Also, there is a possibility that you won’t attain your lofty turnaround goals. Failure of Tribune in its current form is a distinct possibility.

Your decision to dilute our ownership position by issuing 4.7 million shares to Nant Capital, LLC was most distasteful. Furthermore, stacking the Board and ownership in favor of one particular view is not good governance. In fact, your brazen efforts of late have disrupted our belief in fair play. We now believe your primary interest is self-interest. You have fully demonstrated a lack of concern for the majority of unaffiliated shareholders whom we believe want a fair and reasonable transaction with Gannett.

We are greatly disappointed in your recent actions. You have impaired the ability of Towle & Co. to bring value to its clients. For the benefit of all shareholders, we urge the Tribune Board of Directors to negotiate and close a transaction with Gannett at a price greater than $15 a share. Let common sense and wisdom prevail.

Tribune issued a response:

“The Board of Tribune Publishing stands ready to work with Gannett to assess whether there is a path forward that will create more value for both sets of shareholders. The Board takes its fiduciary duties seriously and continues to act in the best interests of all shareholders. Assertions to the contrary are simply false."