A site of endless curiosity

A Great Epic Corporate Battle – Shareholders vs Chicago Sun-Times Board of Directors and CEO

leave a comment »


The world is such an interesting place. 

All kinds of things are happening.  All kinds of passions and the endless tug of desires this way and that.  Some people will call it conflict – and some people are afraid of that word. 

 Lets call it a collision of values.  The great cosmic battle among people’s values, desires, self-preservation, and destruction.

From time to time there are great epic corporate battles – shareholders vs the executives – Athens vs Sparta. 

Thucydides, one of the early greek historians  was 2500 years too early. But he got it right –

The cause of all these evils was the lust for power arising from greed and ambition; and from these passions proceeded the violence of parties once engaged in contention – Thucydides

In early 2009, at the time of this writing, the news is all about the economy and the excesses of corporate executives in the context of failing companies.

If you are a shareholder in public companies and you read the proxy materials you get in the mail you will see the many shareholders proposals to do things like ratify executive compensation, disclose lobbying activity, change stock option awards, to be able to nominate board members, and all the rest.  According to the SEC the highest number of shareholder proposals was related to executive compensation.

Not interested in small skirmishes – but events that change history

Issues over executive compensation – that’s the small stuff – not an epic battle at all.  How about the shareholders trying to replace the Board of Directors and the CEO?  Now maybe there is an epic corporate battle worth writing about.   Strap on my friends, you are in for a treat.

The Chicago Sun-Times Media Group

Its was something of a battle in Chicago in early January2009.  The shareholders vs the Chicago Sun-Times executives.  Really, it was one shareholder in the form of a Hedge fund – Davidson Kempner Capital Management – owning a 5% share stake in the Chicago Sun Times.

Davidson Kempner Capital Management playing hard ball

This is the partial text of the letter that Davidson Kempner Capital Management sent to fellow shareholders

On November 18, 2008, the Company issued a press release announcing the intention of the Chairman of the Board to resign by December 31, 2008, along with two other Directors who are currently members of the Board’s Special Committee. In this press release, the Board said that it is “evaluating a general restructuring of the Board” and is “evaluating candidates for appointment to the Board” that include our aforementioned Director candidates.

We do not believe these pronouncements are sufficient to address the urgent need for new leadership at Sun-Times. 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…

… As a large stockholder, we have been consistent in voicing the need for seasoned directors with deep publishing and financial restructuring experience who can immediately begin the critical mission to streamline the Company’s cost structure and mediate liabilities. We have proposed five highly competent and qualified candidates to guide the Company as new Directors in these endeavors which we believe are essential to resuscitate the Company and preserve this franchise for all stakeholders.

The failure of the Sun-Times Directors to commit to the immediate reconstitution of the Board we have proposed has left us with no alternative but to seek this reconstitution through the consent of Sun-Times stockholders. As time is of the essence, we are moving forward to undertake this solicitation. We view a direct solicitation as the most expeditious means of reconstituting the Board so that new Directors can work to position Sun-Times to move forward over the long term as a financially healthy and operationally sound media enterprise over the long term.

Davidson Kempner is seeking the consent of Sun-Times Media Group stockholders to the changes it has proposed for the Sun-Times Board of Directors. Davidson Kempner and its affiliated entities hold in aggregate 4,858,073 Sun-Times shares or 5.9% of common stock outstanding as disclosed in our Schedule 13D filing dated September 10, 2008. Additionally, as described in our Schedule 13D, certain of these affiliated funds own substantial amounts of Hollinger Inc. notes that are secured by a pledge over 16.5 million of the Company’s shares of which we disclaim any beneficial ownership.

By providing your consent, you will help to enable the proposals we have made to reconstitute the Sun-Times Board to succeed. We urge all stockholders to support this effort.

We thank you for your support.

The Sun-Times Media Group Responds

 A shot across the bow by Davidson Kempner Capital Management was met with this response by the Chicago Sun-Times Media Group to the Shareholders

 CHICAGO, Nov 26, 2008 (BUSINESS WIRE) —

Sun-Times Media Group, Inc. (OTCBB:SUTM)today announced that it has filed a Preliminary Consent Revocation Statement with the Securities and Exchange Commission. The Preliminary Consent Revocation Statement was filed in connection with the opposition by the Company’s Board of Directors to the solicitation of written stockholder consents by Davidson Kempner Capital Management LLC to remove all but one member of the current Board of Directors and replace them with Davidson Kempner’s four nominees (the “DK Consent Solicitation”). The Board of Directors has fixed December 1, 2008 as the record date for the DK Consent Solicitation.

The Sun-Times Media Grop Marshalls additional Forces

The Sun-Times Board of Directors and CEO under siege by Davidson Kempner Capital Management and the Consent Solicitation to remove the executives are not going down without a fight.  They look for allies to fend off their destruction

Sun-Times wins backing in proxy fight
By James P Miller
December 11, 2008

Sun-Times Media Group Inc. said Thursday that a leading independent proxy-advisory firm has backed the Chicago publishing company in its fight to repel a stockholder’s bid for board control.

The struggling publisher of the Chicago Sun-Times has suffered a series of financial setbacks, and its shares now trade for pennies; as of Thursday evening, Sun-Times Media shares closed at 4 cents, a price that values the company at $3.3 million.

Despite the company’s travails, shareholder Davidson Kempner Capital Management LLC has launched a “consent solicitation” in which it is asking company stockholders to back its plan to remove all but one member of Sun-Times’ board.

It’s a slow-motion tussle, in which Davidson Kempner mails letters to stockholders asking their consent; by ignoring the letter stockholders are effectively voting against Davidson’s plan. Sun-Times is asking holders to withhold their consent, and it has sent a “consent revocation” card that will allow shareholders to withdraw their consent if they granted it but have changed their minds.

On Thursday, Sun-Times Media said the proxy-advisory firm Glass Lewis & Co. recommended in a report to institutional clients that investors revoke all consents granted to Davidson Kempner. In its report, according to the Sun-Times, Glass Lewis criticized Davidson Kempner’s failure to provide an operating plan for shareholders to consider.

“We believe that shareholders should demand a detailed business strategy from any party seeking to take control of its board of directors,” Glass Lewis said, according to Sun-Times.

In a letter to Sun-Times stockholders Thursday, Davidson Kempner reiterated that “new direction is needed – now” at Sun-Times, because “failed leadership at the very top has contributed to Sun-Times’ disappointing performance.”

The Epic Battle is Set

 In the end, the shareholders would decide.  Davidson Kempner Capital Management, with only a 5% stake in the company had to convince shareholders owning at least another 46% stake in the company to vote in thier favor to replace the Board of Directors.  The appeal was a simple one – change the Board and change the downward spiral of the company.

So, what was the outcome?

Sun Times revamps board after shareholder revolt

Jan. 22, 2009

(Crain’s) — Sun-Times Media Group Inc. got a new board of directors Thursday after one of the media company’s largest shareholders gathered enough support from fellow investors to force a change.

The shareholder, New York-based Davidson Kempner Capital Management LLC, won the support of more than 50% of shareholders to overhaul the seven-member board headed by CEO Cyrus Freidheim.

Sun Times said Thursday that the votes had been validated and a new four-member board was in place.

The lone holdover from the previous board is Polar Securities strategist Robert Poile, whose firm owns 11% of the company.

The three new board members are Jeremy Halbreich, a former Dallas Morning News president, and two turnaround experts, Michael Katzenstein and Robert Schmitz.

It’s unclear whether Mr. Freidheim will remain as CEO. Also unclear is what will become of his plan to cut $50 million in expenses this year to bring the company back to profitability.

A spokeswoman for Sun Times didn’t immediately respond to a request for comment.

Mr. Freidheim and the majority of the former board resisted the changes, saying the new slate lacks clear plans to turn around the money-losing operation.

Sun-Times CEO Cyrus Freidheim  is Out!

Slightly after this action, on February 9, 2009 Sun-Times CEO Cyrus Freidheim resigned.  But it really get better

Freidheim joined Sun-Times in November 2006, succeeding an interim CEO who had been asked to lead the company after longtime CEO and controlling stockholder Conrad Black was thrown out. Black was subsequently convicted of felony fraud charges in connection with his mismanagement and outright looting of the Chicago company, which publishes the Chicago Sun-Times and other area papers.


So what is the upshot of all this?

Davidson Kempner Capital Management had only a 5% stake in the Sun-Times Media Group.  They saw the value of their investment in the Sun-Times plummet in value as the Sun-Times reported a loss of $168 million in Q3 2008.

For the 2007 calendar year, Sun-Times had revenue of $372.3 million and an operating loss of $140.2 million.   The company has fallen out of compliance with New York Stock Exchange listing standards. For one, over a consecutive 30-trading-day period its average market capitalization was less than $75 million. And a recently reported shareholders’ equity was also below $75 million.  The stock was facing a delising from the New York Stock Exchange.

So, one could ask, if Davidson Kempner Capital Management had only a 5% stake in the company what did the shareholders who owned 95% stake in the company think about the decline of the Sun-Times Media Group? 

Were the 95% content to stand there dumbfounded as thier stock was about to be delisted and their investment beome worthless?

The “Get”

The “get” is this.  If shareholders, stakeholders, and people who provide support to organizations – be it a for-profit or a non-profit organization would pay more attention to the performance of boards of directors and executive and take action as needed then perhaps our organizations – profit and non-profit alike – may have better outcomes for those who they supposedly serve.

But lets not get too optimistic about what Davidson Kempner Capital Management and the Sun-Times Shareholders accomplished.  They were able to replace the board and CEO.  But that is only a small step on the path to success.  The path is now open.  What they have really only accomplished is to remove a clog – to remove a path that did not work.  Now the big work is ahead – to remake the company and position it for success.


Consent Solicitation Statement to Reconstitute the Board of Directors of the Sun-Times Media Group

Sun-Times Board of Directors Urges Stockholders to Reject Dissident Stockholder Proposal

Merril Lynch Golden Parachute for Stan O’Neal

Boards Refuse to Act Despite Poor Governance

 Check your favorite company CEO and executive compensation –



Written by frrl

February 14, 2009 at 6:17 am

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: