Illustration: Annelise Capossela/Axios
Lee Enterprises was delivered a huge win this week after a Delaware judge sided with Lee in hedge fund Alden's lawsuit against the local newspaper company.
Why it matters: The decision marks a major milestone in the bitter takeover battle between Alden, a hedge fund known for consolidating local news companies for profit, and Lee, one of the last remaining independent chains of local newspapers.
Details: The court upheld Lee's decision to reject Alden's nomination of two directors to its board, Lee announced Tuesday.
- The judge ruled that Lee's rejection was "contractually proper."
- Alden said Tuesday in response to the ruling that it will file preliminary proxy materials with the SEC for a “Vote No” campaign from Lee's shareholders to force the resignation of two of Lee's board members who are running for reelection.
Catch up quick: Alden first presented a hostile takeover bid for Lee last November. Lee enacted a “poison pill," a corporate tactic to give Lee shareholders more time to review Alden's proposal.
- In response, Alden tried to quickly nominate three board directors to Lee's Board. Lee said Alden's nominations were invalid, citing failure to comply with paperwork requirements, and Lee's board later unanimously rejected Alden's purchase proposal. Alden then sued Lee, arguing Lee's board infringed on company bylaws in its decision to reject Alden's nomination.
Be smart: At the heart of the tension between Alden and Lee's shareholders and board is whether Alden's initial offer of $24 per share fairly values Lee.
- Lee's share price has jumped in the months following Alden's shareholder bid, closing at $35.50 on market close Monday.
- Alden has argued that Lee is mismanaged. Lee retorts that Alden is using mismanagement arguments to obscure its true intentions to takeover Lee and consolidate its operations to squeeze profits.
- Alden used similar tactics to take over Tribune Publishing in 2021. The hedge fund says it plans to invest in Lee, but its track record of consolidation with Tribune makes Lee's board, shareholders and regulators skeptical.
The big picture: Consolidation in local media continues to run rampant, especially among private investment firms that see an opportunity to squeeze profits out of local news companies while they face terminal decline.
- Local TV giant Tegna is in talks to sell to one of its largest shareholders, Standard General, and private equity firm Apollo Global Management, Bloomberg reported.
Yes, but: Lawmakers have become increasingly wary of investment firms trying to gobble up local news companies for profit.
- When introducing the Journalism Competition and Preservation Act last year, Rep. Mark DeSaulnier (D-Calif.) said, "Hedge funds continue to purchase newspapers with the intention of turning a profit rather than informing the public."
What's next: Lee's board will hold its annual shareholder meeting on March 10.