Boardroom Battle? Activist investor targets two local companies
Scripps, Cincinnati Bell could face proxy fights
12:31 PM, Feb 1, 2018
2:07 PM, Feb 2, 2018
CINCINNATI -- Could activist investor Mario Gabelli be this year’s Nelson Peltz?
The founder and CEO of GAMCOInvestors Inc. this week proposed two new board members each for two local companies: Cincinnati Bell Inc. and E.W. Scripps Co., WCPO's parent company.
The announcements set up possible proxy fights between the companies and Gabelli. GAMCO and its affiliates own about 11 percent of Cincinnati Bell’s stock and 16.5 percent of Scripps’ Class A common shares.
Gabelli is a well-known investor who once compared corporate activists to skunks at a garden party. While he has initiated dozens of proxy contests in recent years, he is not known for expensive and high-profile proxy battles like the one that Nelson Peltz undertook at Procter & Gamble Co. last year.
That fight cost both sides more than $60 million before ending with a compromise when P&G agreed to add Peltz to its board voluntarily.
Compare that to last year’s proxy contest at Superior Industries International Inc., when GAMCO said its expenses would not exceed $60,000, said Josh Black, editor in chief for Activist Insight.
“They have a mixed record of success,” Black said. “They quite often nominate directors or put forward shareholder proposals at controlled companies where they don’t have a high chance of success. For them, it’s less about getting into the boardroom and more about keeping an idea on the agenda.”
GAMCO announced in October that it would seek up to three board seats at each company. But this week, it identified only two nominees for each – saying that additional names could follow.
For Cincinnati Bell, GAMCO said it intends to nominate James Chadwick, portfolio manager at Ancora Advisors LLC, and Matthew Goldfar, managing member at Southport Midstream Partners LLC.
For Scripps, GAMCO said it intends to nominate former Media General CEO Vincent Sadusky and Colleen Birdnow Brown, founder of Marca Global LLC, a marketing firm that specializes in online reputation management.
Cincinnati Bell declined to comment on Gabelli’s filing. Scripps announced a director nominee of its own. The company will ask shareholders to elect Lauren Rich Fine, a former managing director of research Merrill Lynch, to replace Marvin Quin, a former chief financial officer for Ashland Inc., who plans to leave the board in May.
Gabelli has yet to formally file rival proxy statements with the U.S. Securities and Exchange Commission. And he’s yet to comment on any changes he’d like to see at either company.
Cincinnati Bell has gone through a dramatic transformation in the past year by merging with Hawaiian Telcom and acquiring a Toronto-based technology company. It’s trying to become a global provider of fiber-optic cable access and IT services. Cincinnati Bell shares closed at $17.17 Wednesday, down 11 percent since those deals were announced last July.
Scripps is also a company in transition, announcing the planned sale of its radio division last week and preparing for a series of TV transactions that could bolster its position in local media markets. When contacted by WCPO last week, Gabelli said Scripps’ announcement about the sale of 34 radio stations was “old news.” But he declined to reveal what he’d like the company to do differently.
"Over the last few months, we've made significant progress through several key initiatives," Scripps CEO Adam Symson said in a prepared statement. "Our board members guide us in these strategies, and we're confident we have the right mix of expertise in our boardroom to help us continue to create value for our shareholders."
Scripps has a divided ownership structure in which 11 million shares – and eight board seats – are controlled by the Scripps family. Three additional directors are elected by Class A common shareholders, a group that includes Gabelli. Assuming GAMCO files its formal proxy before Monday's deadline, its two nominees would compete with Lauren Rich Fine and two existing board members: Roger Odgen and Kim Williams. The three highest vote tallies win board seats.
“I can’t envision (Gabelli) forcing the family’s hand,” said Benchmark Company analyst Daniel Kurnos. “Since they have voting control, he could make some minor impact but can’t effect a drastic strategy change on his own.”
Kurnos likes the new strategy outlined by Symson to improve the operations of local TV stations by pursuing acquisitions or trading for stations in cities where it can control two stations with major network affiliation. Scripps currently has four such duopoly markets, but none of them include two stations tied to the “big four” networks: ABC, NBC, CBS and Fox. Replacing a single station with "a big four duopoly" would boost the company's cash flow margin in that city by up to 15 percent, Kurnos said.
“The math is clear,” Kurnos said. “I do expect Scripps will be very active in the in-market M&A environment, but unfortunately, direct swaps took a hit with the recent changes to the tax code, so deals may need to be structured a bit more creatively.”