Canceled vote at Post-Dispatch parent could be good news for Hoffmann

The Post-Dispatch’s embattled parent company’s best chance to head off a purchase by billionaire David Hoffmann came to an abrupt end yesterday.

Iowa-based Lee Enterprises had sought to raise $50 million from its shareholders, which would have allowed it to reduce the interest on its $455 million in debt from 9 percent to 5 percent for five years. The company has struggled with a staggering debt load ever since paying $1.46 billion for the Post-Dispatch and the rest of Pulitzer Inc. in 2005. 

Lee needed shareholders to sign off on the $50 million equity raise. But it had structured the terms, as the industry-focused website A Media Operator has reported, in a way that would stop its second largest shareholder, Hoffmann, from taking over.

Fresh off his controversial adventures buying up wineries and other tourism-focused assets in Augusta, Hoffmann began broadcasting his interest in buying Lee. He also made no secret of his concerns about Lee’s management, and in July, proposed a recapitalization plan: He’d invest $25 million at $2 per share. That would dilute other shareholders, and take his stake from just under 10 percent of the company to as much as 82 percent of it.

Lee’s management has not responded publicly to Hoffmann’s criticisms. But its attempt to raise money from shareholders would have allowed it to dilute Hoffmann’s share and potentially thwart his takeover, as media analyst Jacob Cohen Donnelly wrote for A Media Operator. 

“Everything rides on that December 19 vote,” Donnelly wrote last week. “If shareholders approve it, it’s because they believe management can complete the digital strategy, especially with $50 million in cash on the balance sheet plus $18 million in annual interest savings. It could also be that Lee issues the shares at a significant enough discount that it’s a no-brainer for everyone involved. But if the vote doesn’t come through, I wouldn’t be surprised if Lee calls Hoffmann up. Something is better than nothing when it comes to shareholders and bankruptcy.” 

The vote didn’t come through. When it was initially set for Dec. 2, the company postponed it, suggesting it needed more time to get shareholders on board. Yesterday, it canceled the vote entirely—suggesting those efforts failed. 

In a short statement to the SEC yesterday, Lee said, “The Company continues to consider various potential strategic and financing transactions. Therefore, to continue and facilitate that process, the Company has canceled the stockholder meeting at this time.” 

Go Deeper: Hoffmann has been a busy guy. ESPN, quoting unnamed sources, reported Wednesday that the Hoffmann family has agreed to purchase the Pittsburgh Penguins, with a rumored purchase price around $1.7 billion. Whether that affects his interest in Lee was unclear yesterday, though Hoffmann Family of Companies has long had a separate media arm. His spokesperson did not respond to our messages yesterday asking about the Penguins purchase and the abruptly canceled shareholder meeting.

Another piece that could be on the move in Lee’s increasingly crowded chessboard? Warren Buffett’s Berkshire Hathaway is Lee’s longtime lender. The Nebraska billionaire has long had a soft spot for newspapers, and his company has been patient with Lee. Last year, when the company suffered a paralyzing cyberattack, Berkshire Hathaway waived debt service for months. 

But the Oracle of Omaha plans to retire this month. Whether his hand-picked successor will retain his interest in the newspaper business is an open question. That successor, Greg Abel, is a Canadian who has long run Buffett’s non-insurance businesses, which include a railroad; chemical, energy and industrial companies; and Fruit of the Loom. Any impatience from Berkshire Hathaway under its new leader could increase the pressure on Lee’s management, leading to the potential for more cuts at papers such as the Post-Dispatch. 

In September, Lee laid off or bought out at least three St. Louis-based staffers and shuttered the local food publication Feast. The Post-Dispatch has also recently ended its print Monday publication as it increasingly pushes subscribers to online products. It now has fewer than 68,000 print and digital subscribers combined, according to its annual report. Digital advertising dropped last year, and while the company did see an increase in revenue from digital subscriptions, overall revenue was still down 18.6 percent from two years prior.

What’s Next: All eyes are now on Hoffmann. It’s worth noting that Alden Capital offered $24/share in 2021; Lee’s board of directors rejected the offer, saying it “grossly undervalues Lee.” 

Since January of this year, Lee’s stock has dropped from $14/share to, earlier this week, $3.40. Even so, after news that Lee had canceled its vote yesterday, share prices were up 17 percent from the day prior.