Cannell Capital Wages “Vote No” Campaign Against 3 Directors Including Chairman
Cannell Capital’s Carlo Cannell believes he is doing regional newspaper company Lee Enterprises a service by urging shareholders to vote against the three board directors up for election next month, including Chairman Mary Junck, he told CorpGov in an interview.
“Mary Junck should be out here on the next plane to give me a foot massage,” said Mr. Cannell, whose firm is based in Wyoming while Lee is headquartered in Iowa.
Mr. Cannell’s fierce words come after his firm announced a position in the company in late December when he criticized it through a letter. He has since published a slide deck detailing the company’s alleged shortcomings, including what he calls excessive compensation and a weak operational performance. Mr. Cannell said his stake in the company has risen above 5% and he expects to file another presentation as soon as Monday.
The campaign was launched just months after Warren Buffett’s Berkshire Hathaway endorsed Lee’s management by hiring the company to manage dozens of newspapers for an annual fee of $5 million with further upside linked to performance. That deal sent Lee’s shares temporarily higher but they have since retreated and are down more than 90% from their record high.
A chief complaint from Mr. Cannell is that Lee, which operates in 49 regional markets, hasn’t managed the shift from print to digital as well as it could have, despite the company’s reported 8.3% annualized growth in digital revenue since 2011. Struggling newspaper companies have been forced to slash costs, consolidate, or sell out to financial buyers since print peaked in the early 2000s. Most recently, hedge fund-backed MNG, better known as Digital First Media, announced a hostile bid for USA Today publisher Gannett.
Mr. Cannell’s campaign is somewhat unusual because he launched it after the deadline to nominate his own director picks. That means that even if the three directors don’t get majority support, they won’t necessarily need to step down or be replaced right away.
But Mr. Cannell isn’t discouraged by what he calls a technicality. “The way I see it I’ve already won,” he said. “Shareholders are already pissed off…I’ve already achieved more than I thought I’d achieve.”
Mr. Cannell said that since he launched his campaign, he has fielded calls from frustrated shareholders but also potential investors in the company such as strategic buyers and financial firms like private-equity shops.
He added that a vote indicating a lack of shareholder support would herald the inevitable removal of current directors. “Do these directors want to end their careers with this cloud of shame?” he asked rhetorically. “Eventually they will not be there anymore.”
Mr. Cannell pointed out that he will also have the chance to actually name specific candidates several months from now for next year’s vote. He has already identified six potential directors and attempted to introduce them to the company, though Lee has declined to speak to them, he said.
“I presented some outstanding directors, which isn’t easy to do with little Lee Enterprises,” he said. “I asked them to keep some of them confidential and they said ‘no’ which is obstinate.”
Earlier in January, Lee said in a filing it had engaged director search firm Spencer Stuart to help in “identifying, screening, and assessing the capabilities of potential director candidates.” The company’s filings also show an extended back and forth with Mr. Cannell over the last several months.
Mr. Cannell said he is likely to name one of his director suggestions in the presentation planned for publication Monday. He also said that he would be willing to settle on terms that included only one director of his choosing, as long as the company agreed to some other terms.
He emphasized that his director suggestions were not representatives of his firm. “I’m seeking directors to benefit all shareholders,” he said.
As part of its defense against Cannell Capital, Lee recently disclosed that it’s budgeted an additional $425,000 beyond its normal proxy solicitation expenses. Part of that sum includes a fee to Morrow Sodali LLC, which will employ 25 people to assist in proxy solicitation.
That sum may appear high for a company like Lee, which has a market capitalization of roughly $150 million, down from about $2 billion at its peak in the early 2000s. But a proxy solicitor interviewed by CorpGov said investor outreach can be expensive, requiring phone and mail outreach, particularly when there is a large retail base. Lee had over 25% of its quorum voted by brokers last year without instruction and another large chunk of shares not represented at the meeting at all, the proxy solicitor said.
For his part, Mr. Cannell said his campaign had only incurred costs in the low hundred-dollar range (not thousands). “I’m not going to seek reimbursement from Lee for my $120,” he said.
Mr. Cannell said that Lee needs to recognize the value in digital operations rather than print. You can’t continue live in “this world of 1989 25-times Ebitda multiples for newspapers,” he said. “The music has stopped.”
Mr. Cannell reiterated that directors including Ms. Junck have been paid far too much in an environment when cost cutting is critical. According to Cannell’s letter in December, Ms. Junck has taken more than $40 million of compensation since 2002.
“They’ve been paid a lot of cash but it could have been in equity,” Mr. Cannell said.
John Jannarone, Editor-in-Chief