In response to a takeover bid from Sinclair Broadcast Group, valued at over $500 million, E.W. Scripps Company has announced the adoption of a shareholder rights plan. This move, disclosed Wednesday, is a strategic maneuver often referred to as a "poison pill."
The primary purpose of this plan is to provide the Scripps board with ample time to thoroughly evaluate Sinclair's proposal and explore other potential strategic alternatives. Essentially, the mechanism works by diluting the holdings of any investor who acquires more than 10 percent of the company’s shares without prior approval from the board.
The shareholder rights plan took immediate effect and is set to expire within one year. According to the plan, current shareholders will have the opportunity to purchase additional shares at a significant discount of 50 percent if any investor surpasses the 10 percent ownership threshold. Recent filings indicate that Sinclair currently holds 9.9 percent of Scripps.
"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,” stated Kim Williams, chair of the Scripps board.
Sinclair revealed its stake in Scripps earlier this month and formally submitted its takeover offer on November 6th. The proposal outlines that shareholders would receive $7 per share, comprised of $2.72 in cash and $4.28 in stock of the combined company. This offer represents a 200 percent premium to Scripps’ 30-day volume-weighted average price as of November 6th.
Sinclair projects that the deal would generate approximately $325 million in synergies and intends to fund the cash portion of the offer using existing liquidity. Shareholders would have the option to choose between receiving cash or stock, subject to proration. If the merger is approved, Scripps shareholders would hold approximately 12.7 percent of the resulting combined entity.
A Sinclair spokesperson described the proposed merger’s rationale as “indisputable.” The spokesperson also commented: “Given the family control of Scripps, the only effect of adopting a poison pill is to limit liquidity opportunities for public shareholders of Scripps. 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.”
Voting shares in Scripps are largely controlled by the descendants of company founder Edward Scripps, who collectively hold roughly 93 percent of the vote, according to the company’s annual report. As per the terms of the rights plan, Scripps will issue one right per share to holders of Class A common stock and voting shares as of December 8th. These rights can only be exercised if an entity acquires more than 10 percent of Class A common shares.
Furthermore, in the event of a merger following an unauthorized acquisition, the plan grants rights holders the ability to purchase the acquiring company’s stock at a 50 percent discount. The proposed merger would bring the combined company’s total station count to over 240, potentially raising concerns from regulatory bodies such as the Federal Communications Commission, which currently limits national station ownership to 39 percent of U.S. households.