Activist Shareholder Urges Dallas Morning News Parent to Consider Going Private

A Pennsylvania investment firm is urging the parent company of The Dallas Morning News to consider taking it private.In a sharply-worded letter Wednesday to A. H. Belo Corporation’s board chairman, shareholder David Cohen challenged the company’s intentions to remain publicly traded and its recent regulatory filing that showed seven-figure pay packages awarded to key executives.“We believe the time for patience is past and the time for action is now,” said Cohen’s letter to board chairman John Beckert. Cohen and his Minerva Advisors investment firm own about 5 percent of A. H. Belo’s stock.Robert W. Decherd, chairman, president and chief executive officer of A. H. Belo, declined comment. He said “the company does not comment on matters of this type.”Decherd is one of three members of the company’s founding family who control a special class of voting shares that limits other shareholders’ ability to force change. The Dallas Morning News has been controlled by the descendants of Alfred H. Belo since 1879.Cohen’s letter acknowledged he couldn’t “employ the normal tools of democracy” because of the family’s “super-voting” shares. But he laid out a three-part action plan that included using cash reserves to pay shareholders a special dividend.He also wants an adviser hired to consider strategic options for the company’s publishing and digital marketing divisions. In many cases, that step leads to the sale of all or parts of a company.Cohen questioned A. H. Belo’s decision to buy a Tulsa digital marketing firm after spending what he calculated as $25 million on similar companies in recent years. A.H. Belo’s digital marketing business declined 36 percent last year.“It is unclear to us what that return on that investment has been,” Cohen wrote. “It has certainly not put A.H. Belo on a sustainable path.”Last year, A.H. Belo reported a loss of $5.4 million, or 26 cents a share, versus a profit of $10.2 million, or 46 cents a share, in 2017. Revenue declined 18.6 percent to $202.3 million.The company reports its first quarter results next week.Cohen raised many of these issues during A. H. Belo’s earnings call in March. At the time, Decherd said that costs of operating a board of directors wouldn’t go away if the company was privately-held. He also said he liked “the disciplines of operating as a public company.”“We have to think like the small company that we’ve become. I think we are making progress,” Decherd said at the time. “Public or private, everyone has to get to the other side of this river.”Cohen said shareholders have been patient waiting for their return “while the board paid out (or committed to pay out ) meaningful sums to the managers and to themselves.” He said board fees last year exceeded $800,000.He also questioned the long-term commitment of board members, citing a vote in December that allowed them to turn long-term stock awards into shares they could immediately sell. He said board members collectively own shares worth about $800,000.Former CEO Jim Moroney’s total compensation of $2.17 million through May of last year “is a substantial sum for a company so focused on cost containment,” Cohen said. He challenged the salaries, stock awards and severance agreements of Grant Moise, president and publisher of The Dallas Morning News, and Tim Storer, president of Belo + Company, the digital marketing arm of A. H. Belo. Cohen urged the company to put an immediate stop to using cash for acquisitions and “for insider compensation beyond salaries and incentive compensation based on financial performance.” His letter, however, stopped short of asking for a board seat -- a common request of activist investors.Instead, he wants the board to consider paying a special dividend from the $55 million the company is holding in cash or buying back stock to inflate its earnings per share and stock price.“The long-suffering shareholder should receive some of the cash on the balance sheet in the form of a special dividend or substantial one-time stock buyback,” Cohen said.Saying he is “deeply respectful” of The Dallas Morning News and “its historical importance to the region,” Cohen gave management credit for protecting the company from “mountains of debt which have doomed many newspaper publishers.”“Survival, however, is a low standard for success,” he said.  Continue reading...