By: Mark Fitzgerald The hedge fund that demanded -- and got -- the deep budget-cutting underway at Sun-Times Media Group (STMG) newspapers now wants to cut the Chicago publishing group's board by more than half, installing minority shareholders in most positions.
K Capital Management LLC disclosed in a Securities and Exchange Commission (SEC) filing Wednesday that it had sent a letter to Richard C. Breeden, the special monitor overseeing investigations into corruption allegations at Hollinger Inc., the majority shareholder in STMG, and G. Wesley Voorheis, the top Hollinger Inc. executive who is also a STMG director. The letter demands "an immediate and radical" down-sizing of its board from 11 members to five.
Voorheis would be kicked off the board under the K Capital plan. STMG Chairman and CEO Cyrus F. Freidheim Jr. would be retained, and Hollinger Inc. would be represented by its CFO William Aziz, who is a STMG director now. The other nominees K Capital wants installed are Graham W. Savage, chairman of Callisto Capital; Gene Fox, managing director of Cardinal Capital Management; and Jennifer Wallace, portfolio of Summit Street Capital.
In the letter dated Tuesday, K Capital Portfolio Manager Abner Kurtin said the fund, which controls a 9.7% stake in STMG, is "very frustrated" with the current 11-person board.
"This large, ineffective Board is a legacy from Sun-Times' past and has overseen massive value destruction," Kurtin wrote. "Sun-Times shareholders need a break from the past. K Capital believes a smaller Board that has more
shareholder representation and that is more focused on value creation is necessary to lead Sun-Times during this critical period."
STMG's director of investor relations, Tammy Chase, told E&P the company had seen the letter, and had no comment on it.
Hollinger Inc. is the holding company fallen press baron Conrad Black used to control STMG when it was known as Hollinger International, and published hundreds of papers on three continents. Hollinger Inc.'s only real asset is a 19.7% equity stake that translates into a 70.1% voting control through super-voting stock.
K Capital asked Hollinger Inc. to "immediately" deliver its written consent to reduce the board.
This is the second time in two months, K Capital has publicly pressured STMG to act on its precipitously falling stock, and weakened financial condition -- a legacy in large part due to the financial scandals and alleged looting of millions by Black and other top executives.
In December, K Capital demanded a plan for deep cost-cutting by this Jan. 15, and called for STMG top executives to be paid in stock not cash.
STMG soon after announced a plan to cut more than $50 million in operating expenses -- about 11% of its total -- and said its executives would be paid a mix of cash and stock in 2008. The flagship Sun-Times and other papers in the Chicago-area chain have begun laying off newsroom and other employees. STMG also recently folded three weeklies.
At 1 p.m. EST, STMG stock (NYSE: SVN) was trading at $1.95, up 2 cents, or 1.04% on the opening. In the last year, it has traded as high as $6.94 and as low as 85 cents.
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