By: Mark Fitzgerald
Hedge fund Davidson Kempner Capital Management brushed aside the olive branch offered by Sun-Times Media Group’s chairman — and late Thursday launched a proxy fight to oust the board and its CEO.
In a letter to shareholders filed with the Securities and Exchange Commission, Davidson Kempner said the changes STMG proposed Tuesday, including the resignation of Chairman Raymond G.H. Seitz and two other directors, were too little in light of the company’s “serious financial and operating crisis.”
The letter noted that STMG CEO Cyrus F. Freidheim Jr., commenting on third-quarter results, said the company’s cash position had decreased by $16 million in the quarter.
“The harsh reality is that weakening consumer demand, rising input costs of ink and newsprint, a slowdown in advertising, and a long term secular trend away from print towards online readership have already resulted in negative normalized free cash flow for Sun-Times of roughly $20 million per quarter on average since 2006,” Davidson Kempner wrote.
“In our view, the company must take dramatic steps to arrest the cash burn rate before it exhausts the remaining liquidity on the balance sheet,” Davidson Kempner wrote, citing STMG CEO Cyrus F. Freidheim Jr.’s statement that the company’s cash position had decreased by $16 million in the third quarter.
The letter reminds shareholders that Davidson Kempner’s 5.9% in the company makes it among the biggest single holder of the stock, which is now trading on the Over The Counter markets for pennies a share.
“As such, Davidson Kempner strongly believes it is in Sun-Times’ best interests to change the company’s leadership, both at the CEO and the board level, by reconstituting the board with new directors who combine deep experience in the publishing space with the rigors of financial restructuring,” the letter said.
The proxy formally nominates four directors to fill a board that would shrink to five seats. Davidson Kempner has previously mentioned all four candidates, and said it wants current director Robert Poile of Polar Securities, another large STMG stockholder, to stay on the board.
Among the hedge fund’s nominees is Jeremy L. Halbreich, the former Dallas Morning News president and general manager who in 1998 founded the community newspaper chain American Consolidated Media. He sold the group last year.
STMG director of corporate communications Tammy Chase said the company had no comment on the letter and proxy at this time.
In addition to announcing his intention to resign as chairman, Seitz said two board members who sit on the Special Committee that investigated the allegedly widespread “looting” of STMG under its control by imprisoned former newspaper baron Conrad Black are resigning, and the committee will be eliminated.
To further save money, the board intends to deregister its stock, freeing it from the obligation to file reports with the SEC while allowing it to trade on the OTC Pink Sheets. Freidheim also announced another $45 to $50 million in expenses will be cut from the chain, publisher of the Chicago Sun-Times and dozens of dailies and non-dailies in the Chicago area.
“In our opinion, a partly reconstituted Board, which leaves the chief executive and two existing directors in place on the Board with no assurances regarding the selection of three future directors, is an inadequate gesture given the magnitude of the issues confronting the company,” Davidson Kempner’s letter said.
The full text of the letter to shareholders is at Fitz & Jen blog