E.W. Scripps has enacted a shareholder rights plan, often referred to as a "poison pill," in response to a takeover proposal from Sinclair Broadcast Group valued at over $500 million. The company made this announcement on Wednesday.
The primary purpose of this plan is to provide the Scripps board with ample time to thoroughly assess Sinclair's proposition and explore alternative strategic avenues. This defensive measure would dilute the ownership stake of any investor who acquires more than 10 percent of the company's shares without the board's explicit approval.
The shareholder rights plan is effective immediately and will remain in place for one year. It empowers existing shareholders to purchase additional shares at a 50 percent discount should any investor surpass the 10 percent ownership threshold. According to recent filings, 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,” said Scripps board chair Kim Williams in a statement.
Sinclair revealed its stake in Scripps earlier this month and formally submitted a takeover offer on Nov. 6. The proposal outlines that shareholders would receive $7 per share, consisting of $2.72 in cash and $4.28 in stock of the combined entity. This offer signifies a 200 percent premium compared to Scripps' 30-day volume-weighted average price as of Nov. 6.
Sinclair estimates that the potential deal would generate $325 million in synergies and plans to fund the cash component of the offer using existing liquidity. Shareholders would have the option to choose between cash and stock, subject to proration. If approved, Scripps shareholders would hold approximately 12.7 percent of the merged entity.
A Sinclair spokesperson stated that the proposed merger's rationale was “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 said. “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.”
Scripps' voting shares are largely controlled by the descendants of company founder Edward Scripps, who hold approximately 93 percent of the vote, according to the company’s annual report. Under 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 Dec. 8. The rights are exercisable only if an entity acquires more than 10 percent of Class A common shares. In the event of a merger following an unauthorized acquisition, the plan also allows rights holders to purchase the acquiring company’s stock at a 50 percent discount. The proposal would bring the combined company’s station count to more than 240, potentially raising regulatory concerns. The Federal Communications Commission currently limits national station ownership to 39 percent of U.S. households.