Since Alden's unsolicited offer on Monday, Nov. 22, Lee has taken steps to thwart the acquisition, and Alden has countered with moves to install its preferred members on Lee's board of directors. Media experts, journalists and some lawmakers have expressed concerns about the deal, especially because Alden has been known to slash newsrooms well beyond the downsizing that's already happened across the industry. 

At stake is the future of community journalism in cities across the nation, including the Quad-Cities, where Lee owns both the Times and the Dispatch-Argus. 

We spoke with experts in mergers and acquisitions, economics and journalism about what happens next. 

Who are the players?

Lee Enterprises, based in Davenport, provides local news and information, and is an advertising platform in print and digitally, in 77 markets in 26 states. In 2020, it acquired Berkshire Hathaway Group's newspapers for $140 million, doubling its size. Based on total circulation, Lee is now the third-largest owner of newspapers in the United States, with major holdings in St. Louis, Buffalo, N.Y., Omaha, Madison, Wisc., and Tucson, Ariz. Lee stock is publicly traded on NASDAQ. 

Alden Global Capital is, according to its website, a New York City-based investment firm. The hedge fund was founded in 2007 and through acquisitions has become the second-largest owner of newspapers in the United States, behind Gannett. Its major newspaper holdings include the Chicago Tribune, The Denver Post, the St. Paul Pioneer Press and the Boston Herald. It is privately held.

What's in the offer?

On Nov. 22, Alden offered $24 per share for Lee, or about $141 million in cash, on a day when the stock was trading at about $18 a share. Lee stock closed at $25.11 on Friday.

Alden has a track record of scooping up local newspapers, and that's part of a larger pattern of hedge funds buying local media outlets, says Rick Edmonds, media business analyst for The Poynter Institute for Media Studies, a nonprofit media research firm.

Edmonds said hedge funds find media companies attractive because they are relatively cheap to buy, and have upside profit potential through the sale of the newspapers' real estate.

“They think they can make a profit both by consolidation, so sort of spreading costs over large groups and papers,” Edmonds said. “But they’re all — and this particularly true of Alden — specialists or sub-specialists in selling real estate and getting maximum value for real estate.”

Alden owns 6% of Lee’s stock already, and because it's making a cash offer — something it couldn't do when it purchased the Chicago Tribune — it says it could close a deal in four weeks if Lee accepts. Alden asserts under its ownership, Lee papers “would be in a stronger position to maximize its resources and realize strategic value that enhances its operations and supports its employees in their important work serving local communities.”

Lee said in a news release that “in consultation with its financial and legal advisors, Lee’s Board of Directors will carefully review Alden’s proposal.”

Although unsolicited acquisition offers are common, they can be less successful than mergers, which are negotiated more privately between company managements, according to Manjot Bhussar, a professor specializing in acquisitions at Iowa State University.

“It's more common for them to look at some of the target companies that they think are undervalued,” Bhussar said. “Then they plan to acquire them and extract more value for them which will benefit their own shareholders.”

Robert Miller, chair of corporate finance and law at University of Iowa, said publicly announcing the offer signified Alden was “going hostile.”

“Going public begins to put significant pressure on the target board because almost always the offer, as here, was a lot more than the stock price when the offer was made,” Miller said. “You have a lot of shareholders who are saying, ‘Gee, our shares are trading at 18. This guy wants to buy it for 24. That looks good to me.’ That puts a lot of pressure on the board to come to terms with the acquirer.”

“It doesn't look like a friendly merger," Bhussar agreed.

What's Lee's strategy?

Lee Enterprises’ board of directors implemented a so-called “poison pill” on Nov. 24 to temporarily guard against a hostile takeover. 

In a statement, Lee Chairman Mary Junck said the plan gives the board and shareholders time to consider Alden’s proposal “without undue pressure while also safeguarding shareholders’ opportunity to realize the long-term value of their investment.”

The poison pill prevents Alden from going directly to Lee shareholders to make what's called a "tender offer." That's an offer to shareholders to buy out the remaining shares, often in excess of the market price. The move circumvents the board.

The poison pill will kick in if Alden gets control of 10% or more of Lee’s stock in the next year. At that point, other shareholders could buy shares at a 50% discount or get free shares for every share they already own. By flooding the market with additional shares, the stock price is diluted, making it more expensive for Alden to acquire a controlling stake.

“The acquirer is sitting there saying, ‘Do I want to go over 10%?’ And the answer is always no, because I'll suffer this massive dilution when a poison pill is activated,” Miller said. “The poison pill prevents an acquirer from closing on a tender offer while the pill is in place.”

The poison pill expires Nov. 23, 2022. But the board can vote to end it at any time and proceed with the acquisition, especially if Alden makes a higher offer.

But the board and Alden may never agree on a price and the poison pill could remain in effect, Miller said. If that happens, Alden has two options: Give up on the sale or try to elect its own members to the board.

What is Alden's strategy?

In response to Lee's poison pill, on Nove. 26, Alden nominated three candidates to join Lee Enterprises’ board. 

“I think that is more targeted toward forcing the board to accept their offer and abandon this poison pill,” Bhussar said.

Lee and Alden disagree about technicalities in the way Alden submitted nominations to the board. Alden maintains it complied with Lee’s deadline and bylaws for nominations; Lee argues it did not.

“Events over the past week, including Lee’s adoption of a poison pill and its frivolous rejection of a request made by an Alden affiliate that the Company provide certain required nominee forms pursuant to Lee’s Bylaws, including a Director Questionnaire, give Alden cause for concern,” Alden said in a news release. “Alden has taken steps to comply with all nomination requirements under Lee’s notice provisions.”

Lee said Alden “failed to comply with the clear and substantive requirements of Lee’s bylaws” when making the nominations.

After a review, Lee's board ruled Alden is not entitled to nominate board candidates for the 2022 annual meeting, according to a statement from Lee. Company officials said Alden attempted to circumvent its bylaws by having a third-party shareholder send a cover letter and "an incomplete and internally inconsistent nomination notice." 

"Alden’s hasty and convoluted attempt to work around our simple and common procedure on the eve of the nomination deadline does not meet the clear requirements of Lee’s bylaws," Lee stated. "Alden’s failure is entirely of its own making. Alden is not entitled to invent its own process for its convenience."

Alden could implement a proxy contest enabling it to send independent information about nominees to Lee’s shareholders. But that would be far more costly for them, the experts said.

Three of eight seats are up for election this year.

If Alden gains three seats, Lee still has majority control of the board, making it unlikely the poison pill will be repealed, Miller said.

The shareholders vote on board members at the 2022 annual meeting. No date has been set, but it's typically held in late February.

Investigation into the board

On Nov. 30, Kaskela Law LLC announced a stockholder investigation into Lee’s board.

In a statement, the law firm said it wants to determine if board members “breached their fiduciary duties” to shareholders through their response to Alden’s offer.

Bhussar said the main job of board members is to protect shareholder wealth and provide guidance to the company's leadership so they meet strategic goals. When considering the acquisition offer, the board needs to ensure they are acting in the best interest of the shareholders.

“They're bargaining with these people,” Miller said, regarding the poison pill.

Miller said these types of investigations happen in most high-profile mergers. Lawyers are typically looking for a settlement if they can find a shareholder plaintiff to represent.

“The vast majority of these suits are not meritorious,” Miller said. “In many cases, people who really do this for a living, they can even predict which law firm will likely be the first to bring the suit and when. It's that predictable.”

What would an acquisition mean for Lee?

Alden has the reputation of significantly cutting costs in the newsrooms it acquires, including selling real estate and offering buy-outs or laying off a percentage of staff. Experts say they expect the pattern to continue at Lee newspapers if the merger goes through.

The newspaper business has been consolidating for years as it struggles with shrinking revenues and the transition from print to digital. Newsroom jobs dropped nearly in half from 2004 to 2018, according to Pew Research, and the pandemic has exacerbated those stresses.

That's led financial firms to take a prominent role as owners — Alden has expanded its newspaper holdings, and Gannett was purchased by New Media Investment Group, which is managed by investment firm Fortress Investment Group.

Edmonds said when Alden acquired the Chicago Tribune, substantial newsroom cuts were immediately executed to increase cost savings. Experienced columnists and journalists took buyouts, retired or resigned, which compromised the quality of the paper, he said.

“Some beats don't get covered or don't get covered as well,” Edmonds said. “They tend to pull back into the center of a city. Maybe they used to cover a band of suburbs or sort of an outline place where residents of the metropolitan area live and they do less and less and less.”

The unions representing 12 Lee newsrooms also expressed concern about Alden.

“Alden has cut their staffs at twice the rate of competitors, resulting in the loss of countless jobs,” the unions wrote in a letter to Lee's board. “They’ve fostered unhealthy and untenable workplaces that make it impossible to retain talent. They’ve shuttered physical newsrooms to leave journalists working from their cars, and at properties they lease, Alden stiffs local landlords for rent ... There is optimism in our future with a company we’re building together. A future under Alden has only despair.”

Alden said in a news release that its “interest in Lee is a reaffirmation of our substantial commitment to the newspaper industry and our desire to support local newspapers over the long term.”

The company did not respond to multiple requests for comment.

Others in the journalism, business and government sectors have expressed concerns that an acquisition might hurt local news coverage. But in the end, public opinion doesn’t make much of a difference, Edmonds said.

“Broadly speaking, the hedge funds, unlike most companies or anybody else, really don't care about public opinion,” Edmonds said, "and they don't care whether people love them or hate them."