RBR+TVBR INFOCUS
Call it a “poison pill.” Call it fortifying the moat against an invasion on the C-Suite and corporate castle. Short-term shareholder rights plans have emerged at three of the nation’s biggest audio media companies, with the latest one to emerge coming from Cumulus Media.
Details of Cumulus’ plan first emerged early Friday (5/22) in Streamline Publishing’s Radio Ink. But, how does the initiative signed off by CEO Mary Berner compare to those recently codified at Entercom Communications and iHeartMedia?
A Form 8-A filing with the SEC filed Friday (5/22) offers specifics regarding Cumulus’ shareholder rights plan, which will be in effect until April 30, 2021.
It is designed with the expressed purpose “to protect shareholder interests and maximize value for all shareholders.”
With CMLS trading at $3.97 as of 10:30am Friday, the timing couldn’t come at a more appropriate juncture for investors. Cumulus stock has been in a downward cascade since Christmas Eve 2020, when it concluded the day’s trading at $17.94.
While most of February saw trading mainly in the $14 range, the COVID-19 pandemic punctured a gaping hole in Cumulus’ share value, plunging from $14.01 on February 24 to $3.35 by April 3. A small rally succumbed to more novel coronavirus market fears, and on May 12 a post-bankruptcy closing price of $3.14 was logged.
Cumulus’s Board of Directors calls this free-fall in value a “dislocation,” which it believes “does not reflect the company’s inherent value or business performance.”
Further, the Cumulus rights plan is intended “to promote the fair and equal treatment of all shareholders by preventing a creeping change of control without an appropriate premium and on terms that would not deliver sufficient value for all shareholders.”
Translation: Cumulus, following the lead of Entercom and iHeartMedia, does not want to fall victim to a potential hostile takeover — something broadcast TV company TEGNA struggled with for months as Soohyung Kim snagged a significant portion of stock, and then demanded board representation. Kim’s efforts on behalf of Standard General ultimately failed, at the virtual 2020 TEGNA shareholders’ meeting.
The terms of the rights plan involve grant rights for each share of Class A or, for insiders, Class B shares or warrants they may possess. These rights are executable, as explained here, only if a 10% or higher stake in CMLS is seen. For a “passive” investor, such as what TEGNA labeled Kim in its fight with Standard General, the Cumulus threshold is 20%.
“The Board adopted the Rights Agreement to protect the company’s stockholders from coercive takeover practices or takeover bids that are inconsistent with their best interests,” Cumulus explained in its SEC filing. “In general terms, the Rights Agreement imposes a significant penalty upon any person or group that is or becomes the beneficial owner of 10% or more of the company’s outstanding Class A Common Shares (20% or more in the case of a passive institutional investor) without the prior approval of the Board.”
How are the rights executable?
The SEC filing reads, “The Board authorized the issuance of one Right per each outstanding Common Share and Warrant on June 1, 2020. If the Rights become exercisable, (a) each Class A Right would allow its holder to purchase from the Company one one-hundredth of a Class A Common Share for a purchase price of $25.00, (b) each Class B Right would allow its holder to purchase from the Company one one-hundredth of a Class B Common Share for a purchase price of $25.00, (c) each Series 1 Warrant Right would allow its holder to purchase from the Company one one-hundredth of a Series 1 Warrant for a purchase price of $25.00, and (d) each Series 2 Warrant would allow its holder to purchase from the Company one one-hundredth of a Series 2 Warrant for a purchase price of $25.00. Prior to exercise, a Right does not give its holder any dividend, voting or liquidation rights.”
Further in the filing, however, is the key information: If the shareholder rights agreement is triggered by an individual who swoops in to grab a sizable amount of Cumulus stock over the threshold for plan execution, existing shareholders can grab additional shares of CMLS at a 50% discount.
For longtime Cumulus investors, the shareholder rights plan is something they’re already familiar with. In June 2017, the company took a similar action, ahead of its Chapter 11 reorganization declaration in November 2017.
AT THE HEART OF SHAREHOLDERS’ RIGHTS
On the evening of May 6, iHeartMedia’s board of directors signed off on on an adoption of its own shareholder rights plan.
For iHeart, the move was made “in order to protect the best interests of all iHeartMedia stockholders during the current period of high equity-market volatility and price disruption.”
That day’s closing price for IHRT was $6.62. Today, it is trading just below the $7 mark, with COO/CFO Rich Bressler and CEO Bob Pittman have participated May 13 in a digital question and answer session during the J.P. Morgan 48th Annual Technology, Media and Communications Conference.
When one looks closely at the iHeart plan, they’ll see a mirror image of the “poison pill” initiative taken by Cumulus.
Pursuant to the plan, the iHeart board declared a dividend distribution of one right on each outstanding share of iHeartMedia’s Class A common stock, share of Class B common stock and warrant issued in connection with iHeart’s plan of reorganization.
The same 10% active/20% passive shareholder stock acquisition threshold was put in place at iHeart.
And, Cumulus has taken a page from iHeart in offering additional shares to IHRT’s holders at a 50% reduced price.
The iHeart plan runs through May 5, 2021 — a slightly longer period than that of Cumulus.
FIELD OF FENCES
The first of the shareholder rights plans to emerge from publicly traded radio companies arrived April 21 came from Entercom, which noted that their plan “is similar to those adopted by other publicly held companies.”
The Entercom plan expires on April 20, 2021. And, it is a bit different from what iHeart and, now, Cumulus, have put forth. Entercom is being slightly more protectionist.
The provisions put forth by Entercom’s board note that the shareholders’ rights become exercisable or exchangeable “only if a person or group … acquires 10% or more of Entercom’s outstanding Class A Common Stock,” or 15% in the case of “certain passive investors” — or announces a tender offer that would result in ownership above these percentage levels.
To fortify its fences, Entercom founder and Chairman Emeritus Joseph Field this week acquired some $1.6 million worth of ETM shares, in three separate transactions.
This excited investors so much that Entercom shares on Thursday soared by some 30% in value — to $1.85. As of noon Friday (5/22), an 8.65% decline to $1.685 was seen, as some investors still don’t appear convinced that Entercom, with a heavy spoken word and Sports Talk porfolio and heavy rebuilding of two Los Angeles radio stations in progress, is in for a swift revenue recovery post-COVID 19.
News of the shareholder rights plan came on a day ETM closed at $1. It was Joseph Field’s stock buy that finally triggered upward momentum of significance. Now, with shares in retreat ahead of Memorial Day weekend, the first company to declare a plan to save itself from a hostile takeover could be the one audio-focused entity of the three with shareholder rights plans in effect to get the most interest from an individual with the cash — and the right frame of mind to storm the castle.
