Digital First Media, the hedge-fund-backed newspaper chain whose takeover bid for rival publisher Gannett Co. was rejected, has launched a proxy fight in an attempt to remake Gannett’s board of directors.
Denver-based Digital First is one of Gannett’s largest shareholders with about 7.5 percent of its stock. It nominated a slate of six candidates Thursday and will solicit shareholder votes for them to replace a majority of the board members at the company’s annual meeting this spring.
Gannett, the nation's largest newspaper chain and the publisher of USA Today, the Fort Collins Coloradoan and other daily newspapers, earlier this week rejected the $1.4 billion takeover bid from Digital First, which is officially known as MNG Enterprises Inc., and questioned the bid’s credibility.
Digital First -- the nation's third-largest newspaper chain by total circulation -- publishes the Denver Post, Boulder Daily Camera and newspapers in Akron, Broomfield, Brush, Burlington, Estes Park, Lamar, Longmont and Sterling.
On Thursday, Gannett and Digital First said the hedge fund had submitted a slate, confirming The Wall Street Journal’s report from earlier in the day.
All of Digital First’s nominees have ties to its operations. They include Heath Freeman, one of the founders of Alden Global Capital LLC, the New York hedge fund that is Digital First’s majority owner and is known for slashing costs at the titles it acquires. MNG Chairman Joseph Fuchs and former MNG Chief Executive Steven Rossi are also among the nominees.
Gannett said in a statement that it will evaluate Digital First’s proposed nominees and consider whether they are committed to acting in the best interests of all of Gannett’s shareholders or were nominated to support Digital First’s interests and its offer.
Representatives and advisers of Digital First and Gannett met Thursday afternoon to discuss a potential takeover in more detail, a few hours before the deadline to nominate directors to Gannett’s board.
Digital First said in a statement it would have preferred to avoid the distraction and cost of a proxy contest but that it had no choice after Gannett refused to extend the nomination deadline to allow for continued discussions.
Digital First also attempted in writing to reserve the right to submit placeholder names for its nominees and potentially swap them out later, which would give it more time to locate and vet nominees, according to people familiar with the matter. But Gannett’s bylaws don’t allow this, those people said.
Gannett rejected Digital First’s $12-a-share offer Monday, concluding it undervalued the company and questioning how it would be financed. Gannett also raised concerns in its rejection letter about Digital First’s record of laying off large numbers of editorial staffers at its publications, including the Denver Post.
The Wall Street Journal reported last week that Digital First hired bankers from Moelis & Co. to find backing for the deal in an effort to alleviate some of the concerns around financing and continue to press its bid. Digital First said in a statement after Gannett’s rejection that nominating directors would be an option going forward.
As part of its initial offer last month, Digital First also urged Gannett to solicit other bids for the company.
Tribune Publishing Co. is eyeing its own deal with Gannett, according to other people familiar with the matter. The Chicago Tribune publisher has tapped bankers from Lazard and Methuselah Advisors to aid in the effort, those people said, but the two sides have yet to have substantive conversations.
MNG and Alden have run a combined total of five public activist campaigns in the past, according to FactSet SharkWatch. They have targeted companies such as Monster Worldwide Inc. and pharmacy chain Fred’s Inc. The latter reached a settlement agreement with Alden and Freeman is now its chairman of the board.
Dana Cimilluca and Lukas I. Alpert contributed to this article.