Shareholder sues Tribune Publishing and its board, alleges 'poison pill' takeover defense plan is 'overreach of corporate power'

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View of the Chicago Tribune Freedom Center from the Chicago River in the River West neighborhood Saturday, June 8, 2019. - E. Jason Wambsgans/Chicago Tribune/TNS

A Tribune Publishing shareholder is suing the Chicago-based newspaper company and its board, alleging the adoption in July of a so-called poison pill, is “an extremely aggressive overreach of corporate power.”

The lawsuit, filed Friday in Delaware Chancery Court on behalf of the Vladimir Gusinsky Revocable Trust, seeks class-action status and a court order preventing Tribune Publishing from invoking the plan.

The same family trust filed a separate lawsuit Friday against suburban Chicago-based aviation services company AAR, challenging its poison pill plan. Bloomberg Law was first to report on the lawsuits.

The suit against Tribune Publishing alleges the 10% threshold for triggering the poison pill is lower than typical, and the so-called “wolfpack” provision — determining when shareholders are acting in concert — is overly broad and “exceeds any prior notion of permissible exercise of director power.”

The provisions are “so draconian as to … severely hobble or shut down the ability of any stockholder or group of stockholders to seek to influence the direction of the company,” the lawsuit alleges.

Tribune Publishing spokesman Max Reinsdorf declined to comment Wednesday.

The company’s shareholder rights plan created one preferred stock purchase right for each outstanding share of common stock as of Aug. 7. If an entity acquires 10% or more of the outstanding common shares of Tribune Publishing without board approval, the plan gives existing shareholders the right to buy the newly issued shares at a substantial discount.

A poison pill effectively dilutes a buyer’s holdings, making a hostile takeover much more expensive. The lawsuit alleges Tribune Publishing’s plan is “unusually aggressive” and asserts that 15% is the “common” threshold for triggering a poison pill defense. It also alleges that Tribune Publishing’s definition of shareholders “acting in concert” goes “far beyond” typical plans, which require an agreement, arrangement or understanding between shareholders with respect to the buying or selling of shares to trigger the poison pill.

The Tribune’s plan requires only that shareholders are aware of each other and show up at a meeting together to consider them as acting in concert, the lawsuit alleges.

In addition, the lawsuit alleges an exception for the company’s officers and directors makes the wolfpack provisions unfair for shareholders.

“When faced with a threat to their incumbency, the officers and directors of the company can each buy as much stock as they wish up to the trigger,” the lawsuit alleges. “The asymmetric nature of the wolfpack provisions further tilts the franchise against stockholders.”

The lawsuit seeks to declare the poison pill unenforceable and prevent Tribune Publishing from using it.

Gregory Varallo, a Delaware attorney representing the family trust in the Tribune Publishing lawsuit, declined to comment Wednesday.

The adoption of Tribune Publishing’s shareholder rights agreement followed the addition in June of Alden Global Capital co-founder Randall Smith to the newspaper company’s board. The New York-based hedge got the additional seat after extending a standstill agreement that restricts its ability to buy additional shares of Tribune Publishing.

Alden, which is Tribune Publishing’s largest shareholder at 32%, has three of seven seats on the board.

An Alden spokesman did not immediately respond to a request for comment Wednesday.

Tribune Publishing owns the Chicago Tribune; Baltimore Sun; Hartford Courant; Orlando Sentinel; South Florida Sun Sentinel; New York Daily News; the Capital Gazette in Annapolis, Maryland; The Morning Call in Allentown, Pennsylvania; the Daily Press in Newport News, Virginia; and The Virginian-Pilot in Norfolk, Virginia.

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