Shareholder advisory firm ISS backs 1 of 3 MNG Enterprises nominees to Gannett board

USA TODAY owner Gannett is reportedly in merger talks with newspaper chain GateHouse Media and has had discussions with other media companies.·USA TODAY
Nathan Bomey
Updated
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An independent shareholder advisory service on Thursday backed one of a hedge fund-owned newspaper company's three nominees to the Gannett board of directors, according to the two media companies that are battling over whether they should become one.

MNG Enterprises, also known as Digital First Media, won Institutional Shareholder Services' endorsement for the nomination of former MNG CEO Steven Rossi to the Gannett board.

MNG had originally nominated six people to Gannett's board, which would have given the Alden Global Capital-owned company control of Gannett. MNG withdrew three of its six initial nominees in April but maintained its offer to buy Gannett for $12 per share, which Gannett has rejected as not credible.

With one member on the Gannett board, MNG would likely have limited sway over Gannett's future, though it could bring more attention to the company's unsolicited takeover attempt. Gannett's board is set to go from nine members to eight after shareholders vote at the company's annual meeting May 16.

ISS has significant influence over major shareholders who look to the advisory firm for guidance on how to vote on contentious corporate proposals, such as takeover attempts and activist investors.

Gannett said Thursday that it is "pleased" that ISS had not endorsed two of MNG's nominees – Cogent Group Principal Dana Goldsmith Needleman and Alden President and MNG Vice Chairman Heath Freeman – but said the advisory service "reached the wrong conclusion" on Rossi.

Gannett earnings report: Revenue down, digital subscriptions rise as fight continues with MNG

Gannett criticizes offer: Gannett says MNG's proposed deal would be overloaded with debt

Gannett, which owns USA TODAY and more than 100 other publications, said Rossi's "very close ties to MNG and Alden would prevent him from being able to meaningfully fulfill his duties as a Gannett director," in part because he may not be able to receive certain competitive information. The company also criticized Rossi's lack of public board experience outside of his tenure serving on the board of Fred's Inc., a retailer that has struggled considerably since Alden invested.

"Placing an inadequately qualified and significantly conflicted nominee such as Mr. Rossi on the board would do nothing to further the interests of all Gannett shareholders," Gannett said.

MNG said "we appreciate that ISS recognizes the significant shortcomings of Gannett’s entrenched Board" but recommended that shareholders vote for all three of its nominees.

ISS declined to release its full report on Thursday, saying it would do so on Friday.

Gannett CEO Robert Dickey told employees in a company-wide email Thursday that the ISS opinion "is disappointing," saying that Rossi is "significantly conflicted and inadequately qualified" and "would do nothing to further the interests of all Gannett shareholders." He urged employee stockholders to back Gannett's current board members.

According to MNG, ISS concluded that the MNG offer "at face value, makes sense" for Gannett shareholders because Gannett "has thus far been unable to realize profitable growth in its ongoing multi-year digital transformation, and that will face enhanced execution risk as it navigates a CEO transition and continued industry pressures in the immediate future." ISS said the $12 offer is "a reasonable starting point for discussions if the offer was credible," according to MNG.

According to Gannett, ISS concluded that “there are significant concerns relating to financing" of the MNG offer and "significant concerns relating to antitrust and pension issues" associated with MNG.

Gannett shares were down 3.5% to $9.32 in midday trading after rising 1.7% on Wednesday following an earnings report that delivered better-than-expected adjusted results.

Glass Lewis, another shareholder advisory firm, has not yet issued its guidance on how shareholders should vote.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.

This article originally appeared on USA TODAY: Shareholder advisory firm ISS backs 1 of 3 MNG Enterprises nominees to Gannett board

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