Two titans in the U.S. newspaper industry are now battling it out in court, as Davenport-based Lee Enterprises has been sued by New York-based hedge fund Alden Global Capital, over a board nomination process.

In state court in Delaware, Strategic Investment Opportunities (affiliated with Alden and owner of 6.3% of Lee stock) on Dec. 13 sued Lee, which rejected its claim to nominate three candidates to stand for election to Lee’s Board of Directors at the company 2022 annual meeting.

Alden Global Capital — the second-largest owner of newspapers in the nation — on Nov. 22 proposed to purchase Lee for $24 per share in cash, or an estimated total of $141 million, which Lee also rejected on Dec. 9.

The legal dispute arises from adoption by Lee’s board of directors, of the advance notice provisions that “illegitimately infringed on the stockholder franchise” when the board approved bylaws in 2019, according to the 34-page lawsuit.

Strategic Investment Opportunities – referred to as “Opportunities” in the complaint — claims Lee’s Dec. 3 move was an “improper rejection of a valid director nomination provided by a stockholder of record of a slate of three independent director nominees.”

“The Company has breached the Bylaws and the Director Defendants have breached the fiduciary duties they owe to Opportunities in an effort to prevent the stockholders from having a say on Lee’s future through the election of directors at the Company’s next annual meeting,” the suit says.

On Dec. 9, 2021, consistent with the concerns that prompted the board nominations, Lee also “rejected Alden’s proposal without engaging with either Alden or Opportunities,” the suit says. “The Board’s refusal to engage is consistent with its wrongful and baseless refusal to provide the Forms and subsequent rejection of Opportunities’ Nominations Notice.

“Indeed, the Defendants had no legitimate reason to reject the Nomination Notice, and their actions smack of unlawful entrenchment. In doing so, the Company both ignored the plain terms of the Bylaws and attempted to impose heightened standards and obligations on Opportunities, weaponizing its unusually restrictive advance notice provisions, particularly the requirement that only a stockholder of record can request Forms and that upon such request the Secretary has 10 days to provide the Forms.”

The Opportunities suit asks the court to:

  • Declare that the Bylaws, to the extent they require that only a stockholder of record may obtain a copy of the Company’s Forms and that the Company can take up to ten days to provide them, and that the nominating stockholder, who must be a stockholder of record, must also submit with the nomination written representations and agreements, are unenforceable.
  • Find that the Director Defendants breached their fiduciary duties.
  • Find that the Director Defendants breached the Company’s Bylaws.
  • If the Bylaws are not declared unenforceable, find that the Nomination Notice complies with the Bylaws.
  • Declare that the Nominees are permitted to stand for election at the Company’s 2022 Annual Meeting.
  • Temporarily and permanently enjoin the Company and its Board from taking any actions to prevent Opportunities from exercising its rights under the Company’s Bylaws, including but not limited to enjoining the submission of any slate of nominees at the Company’s next annual meeting of stockholder for the election of directors for the Board that does not contain Opportunities’ Nominees.
  • Award Plaintiff its fees, costs, and expenses, including its attorneys’ fees and costs, incurred in connection with this action.

Lee denies all claims

Lee Enterprises – which owns 350 digital platforms and print publications in 77 metro areas, in 26 states – strongly denies all of Alden’s claims.

“As we explained in detail on December 3, Alden’s director nomination notice was clearly invalid and we remain committed to acting in the best interests of all shareholders. Alden’s claims are baseless,” according to a company statement Tuesday.

Lee’s board unanimously rejected the unsolicited, nonbinding offer from Alden to buy the company for $24 per share in cash.

“The Alden proposal grossly undervalues Lee and fails to recognize the strength of our business today, as the fastest-growing digital subscription platform in local media, and our compelling future prospects,” said Lee Chairman Mary Junck. “We remain confident in our ability to create significant value as an independent company and are focused on our Three Pillar Digital Growth Strategy, detailed earlier this year. We have demonstrated accelerating momentum across our platforms as we execute our plan.”

Lee’s board thoroughly reviewed Alden’s notice for board members and found the submission didn’t meet several essential requirements clearly set forth in Lee’s publicly available bylaws. The Lee board said:

“Lee’s bylaws provide a very clear and simple procedure for investors to nominate candidates for election to Lee’s Board of Directors. The nomination procedure and information requirements in our bylaws are consistent with those of the vast majority of public companies incorporated in Delaware. Over the past few years, hundreds of investors – including many that have been advised by Alden’s two law firms – have properly fulfilled these types of notice requirements and information requests.

“Alden, however, failed to meet the most basic and most important requirement of our director nomination procedure: demonstrating it is eligible to nominate directors. Instead of following the straightforward process outlined in Lee’s bylaws to provide proof that Alden is an eligible shareholder, Alden attempted to circumvent the requirement by having an unrelated, third-party shareholder send a cover letter attaching an incomplete and internally inconsistent nomination notice from Alden. In addition, Alden’s nomination notice does not comply with several other substantive requirements of Lee’s bylaws.

“Alden’s hasty and convoluted attempt to work around our simple and common procedure on the eve of the nomination deadline does not meet the clear requirements of Lee’s bylaws. Alden’s failure is entirely of its own making.”

Lee owns the St. Louis Post-Dispatch, Quad-City Times, The Dispatch and Rock Island Argus, and Muscatine Journal, among its newspapers.

Lee may not be done with Alden, though, according to a recent piece from the NPR station in St. Louis (where Lee owns the St. Louis Post-Dispatch).

Damon Kiesow, Knight Chair of digital editing and producing at the University of Missouri School of Journalism, said Alden wouldn’t have made a bid if it didn’t intend to pursue Lee long term.

“They’ve got the time, they’ve got the money. If Lee doesn’t do something to aggressively protect themselves, it’s hard to imagine that it won’t eventually get bought up,” he said, according to the NPR station KCUR.

Kiesow said Lee’s statement rejecting Alden’s proposal read more like a “negotiation” for a higher offer than an outright refusal.

“Their public statement is, ‘You haven’t offered enough,’ and that’s a little bit concerning,” Kiesow said, noting that Lee said the bid undervalued the newspaper chain. Alden has been rejected in the past, only to return with a better offer or a new game plan.

Kiesow said Alden’s process could be similar to its purchase of Chicago Tribune owner Tribune Company. Alden pursued Tribune Company for more than a year, obtaining seats on Tribune’s board until a purchase was approved. Alden officially acquired Tribune Company in May 2021.

Lee’s stock price rose to over $39 a share in Tuesday trading.