E.W. Scripps has adopted a limited duration shareholder rights plan, commonly referred to as a poison pill, after receiving a takeover bid from its rival Sinclair Broadcasting.
Scripps said the plan is intended to protect shareholders from “coercive tactics” and to provide the board with time to “thoroughly evaluate the offer and any other potential strategic alternatives.”
“The board is committed to acting in the best interests of all Scripps shareholders,” Scripps board chair Kim Williams said in a statement. “The rights plan safeguards shareholders’ ability to receive appropriate value for their investment and ensures that the board can assess the recently received proposal, and any strategic alternatives, in a thoughtful and orderly manner.”
The shareholder rights plan will take effect immediately and will expire in one year.
The move comes on the heels of Sinclair amassing a 9.9% stake in its rival and submitted a $7 per share takeover bid for the company’s remaining outstanding shares. Sinclair currently owns 7,625,401 Scripps shares. As of Sept. 30, Scripps had 76,869,408 shares of Class A common stock outstanding.
Under Sinclair’s proposal, shareholders would receive $7 per share, consisting of $2.72 in cash and $4.28, in combined company common stock based on approximately $325 million in estimated synergies and a seven times enterprise value/EBITDA multiple.
The $7 per share offer represents a 200% premium to Scripp’s 30-day volume-weighted average price (“VWAP”) as of Nov. 6, while the $2.72 cash component alone represents a 16% premium. The cash portion of the bid will be funded entirely from Sinclair’s existing balance sheet and available liquidity.
Shareholders may elect to receive all-cash or all-stock consideration for each of their shares, subject to proration. Upon closing, Scripps shareholders would own approximately 12.7% of the combined entity.
A Sinclair spokesperson told TheWrap it believes the strategic and financial rationale of a combination with Scripps is “indisputable.”
“Given the family control of Scripps, the only effect of adopting a poison pill is to limit liquidity opportunities for public shareholders of Scripps,” the spokesperson continued. “As requested by Scripps, we offered a proposal that builds upon previous constructive conversations, and we look forward to continuing to engage with Scripps so we can reach a definitive agreement and deliver significant benefits to shareholders and local communities.”
Under the terms of the rights plan, Scripps will issue, by means of a dividend, one Class A common share right for each outstanding Class A common share and one common voting share right for each outstanding common voting share to shareholders of record as of Dec. 8.
The rights will become exercisable only if a person or group acquires 10% or more of the outstanding Class A common shares. In that situation, each holder of a Class A common share right other than the acquirer will be entitled to purchase additional Scripps shares at a 50% discount to the then-current market price.
If Scripps is acquired in a merger or other business combination after an unapproved party acquires more than 10% of the outstanding Class A common shares, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s stock at a 50% discount.
The board has the option of exchanging each right in whole or in part, at an exchange ratio of one Class A common share per outstanding right, subject to adjustment. Except as provided in the rights plan, the board is entitled to redeem the rights at $0.001 per right.
If a person or group beneficially owns 10% or more of the outstanding Class A common shares prior to Scripps’ announcement of its adoption of the rights plan, that person or group’s existing ownership percentage will be grandfathered. Their rights will become exercisable, with certain exceptions, if they increase their ownership stake by more than 0.1% after adoption of the rights plan.
