Cannell Capital Wages “Vote No” Campaign for February 20 Shareholder Meeting
While none are up for election, the director candidates Carlo Cannell’s Cannell Capital suggested for the board of Lee Enterprises have strong backgrounds in precisely the areas where the regional newspaper operator could use some advice, CorpGov has learned through interviews with four individuals.
The directors Cannell urged the company to consider include a former investment banker with experience in digital media who is now CEO of a privately-held technology company, the CEO of an NYSE-listed company, a senior media executive with experience in print and digital formats, and the head of a family office that often invests in companies in need of corporate governance improvements. The four individuals account for six of the people Cannell wanted to introduce to the company.
The company itself may not have spoken directly to any of Cannell’s candidates. The apparent reason is that some of them wanted to keep their identities confidential but Lee’s attorney, Dana Waterman III, told Cannell that the company couldn’t guarantee confidentiality due to securities disclosure laws that can trigger reporting of such conversations, according to a document reviewed by CorpGov. But in recent days, Lee’s executive search firm, Spencer Stuart, has spoken with at least some of the candidates, they said. Fran Helms, an executive recruiter at Spencer Stuart, didn’t respond to a request for comment from CorpGov.
In a statement, a Lee spokesman said “Mr. Cannell’s director suggestions are being reviewed by our Nominating and Corporate Governance Committee, along with other potential candidates in connection with our ongoing director search process.”
The pressure from Cannell is somewhat unusual because it is running a “vote no” campaign rather than a traditional proxy contest with a slate of director candidates. That means that shareholders can vote against the three incumbent directors but not for any replacements. Some of the individuals interviewed by CorpGov said they would not be part of an actual proxy fight, but would join the board if the company invited them of its own volition.
The first individual, who worked for 20 years as an investment banker before becoming the CEO of a technology company, said he would encourage the company to enhance its digital efforts. He said Lee has media properties with a strong local presence that should be earning more from digital advertising.
In particular, the company should focus more on video, he said. Larger, national publications have focused on video for years because the advertising rate per view is much higher than for display. Even without big investments in technology, it’s possible to create video to support ads known as “pre-rolls” that run just before journalistic content.
Lee should also focus more on its capital allocation, according to the second individual, who is the CEO of an NYSE-listed company in which Cannell owns a stake. Lee, which generates a strong cash flow even though its print business is in decline, has reduced its debt significantly in recent years.
However, the company trades at a very-low earnings multiple and its market capitalization is a small fraction of what it once was; even a modest amount of share buybacks could have an outsized impact on its share price. The company should take steps to relax debt covenants so it can be free to buy back shares, he said. On its latest earnings call, Lee said that loosening covenants to allow buybacks is “high” on its list of goals. The company also said it is actively pursuing a refinancing to reduce its debt costs.
The third individual, who has extensive senior-level experience at both print and digital media companies, said Lee’s digital progress should speed up. A key step would be to introduce an outsider to the board of directors who would be able to effect change more quickly than those who have been around for many years.
He also said there is potential to consider reducing print costs by changing a publication schedule. For instance, a daily paper might move to three print editions a week while increasing its online focus, he said.
The fourth individual, who manages money for a family office and has an extensive background in corporate governance consulting, said the company needs to revamp its approach to M&A. The company has a poor track record with acquisitions, going back to the purchase of Pulitzer Inc. in the early 2000s around the time print revenues peaked, he said.
The board of directors appears to “rubber stamp” acquisitions that senior management recommends, rather than perform a robust vetting process, he said. He said that Lee is not alone in that regard: There is often a strong will to grow a company through M&A because it may lead to higher pay for senior management, even if it’s not the best strategy for shareholders.
Mr. Cannell has also criticized the company through a letter and has since published multiple slide decks detailing the company’s shortcomings, including what he calls excessive compensation and a weak operational performance. Cannell’s stake in the company is approximately 4.7%.
(This article has been updated to reflect Cannell’s correct stake in the company).
John Jannarone, Editor-in-Chief