As it seeks to ward off a hostile takeover bid, newspaper chain Lee Enterprises signaled Thursday that its torrid pace of new digital subscribers will slow down this year.
The Davenport-based publisher reported 450,000 subscribers as of the end of December, a 57% increase over the same period last year. The growth puts Lee halfway to its goal of 900,000 digital subscribers by 2026.
But growth won’t continue at the same pace for the rest of the year, the company warned. In Lee’s latest quarterly report Thursday, executives said they expected to have 495,000 digital subscribers by the end of the fiscal year, which wraps up in September.
That would represent a 10% increase over a nine-month stretch, well below the 46% growth in digital subscribers that Lee saw in the nine months leading up to December.
Asked about the slowdown on a call with analysts Thursday, Lee Chief Financial Officer Timothy Millage hinted that the company will increase the price of some subscriptions.
“We’re trying to grow both our units as well as growing our rates,” he said.
With an emphasis on new websites and the launch of subscriber-only niche publications, digital growth is the linchpin of Lee’s business strategy, especially as company leaders try to resist a takeover from hedge fund Alden Global Capital.
After the investment firm unsuccessfully tried to buy the company for $141 million in November, Lee’s board took several steps to keep Alden at bay. The company implemented a “poison pill” strategy, in which Lee would allow other shareholders to buy stock at a diluted value to lower Alden’s stake. The hedge fund controls 6.3% of Lee’s shares, according to a January regulatory filing.
Lee executives in November also rejected Alden’s request to nominate three board members, prompting Alden to sue the newspaper chain in December. The case is scheduled to go to trial Monday, a month ahead of Lee’s March 10 annual shareholders meeting.
Pending a judge’s order, Alden has nominated two media executives to join the board, including 21-year Meredith Corp. general counsel John Zieser. A West Des Moines resident, Zieser retired from Meredith after digital publisher Dotdash purchased the company in December.
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Alden wants to replace veteran Lee board members Mary Junck and Herbert Moloney III. Junck, the board’s chair, joined Lee in 1999 and became CEO in 2001 before retiring. Her work on the board netted her $250,000 in cash and $150,000 in stock options last year.
Moloney, a former ad printing executive, has been on Lee’s board since 2001. The company paid him $135,000 in cash and $50,000 in stock options last year.
In a Jan. 27 letter to Lee shareholders, Alden executives wrote that the veteran board members are not properly managing the company. Without providing a specific plan, the hedge fund’s leaders said they could guide Lee’s newspapers toward bigger profits and better journalism.
“Our sole purpose in this campaign is to elect highly qualified directors who will bring much-needed independent perspectives and relevant expertise to the boardroom,” Alden executives wrote.
In turn, Lee executives have urged shareholders to resist Alden.
“Alden is targeting our directors as the next step in their campaign to pressure the Company into an unfair transaction that would secure Lee’s upside for Alden alone, at your expense,” the executives wrote in a letter last month.
More:Alden hedge fund appeals to investors in news publisher Lee Enterprises
Investors reacted negatively to Lee’s latest financial report, with stock prices falling 18% to $32 a share on Thursday afternoon.
The drop occurred even though Lee outperformed analysts’ expectations for the quarter, according to the data firm FactSet. Lee reported $202 million in revenue, up from the expected $200 million. The company also reported earnings per share of $2.17, beating the expected rate of 54 cents.
Alden spokesman Cameron Gurley said in an email Thursday, “Lee’s disappointing results and 2022 guidance continue to demonstrate the need for a new strategy and new leadership.”
A Lee spokesperson declined to comment Thursday on what the company charges for digital subscriptions or if leaders expect to increase the price later this year. The company’s financial reports suggests that Lee’s revenue per subscriber decreased last year.
The company reported $7.9 million in revenue on its 450,000 digital subscriptions in the quarter that ended in December — about $17.54 per subscriber. Lee also reported about $6.3 million off 286,000 digital subscribers during the same quarter in 2020 — about $21.94 per subscriber.
Overall, the company’s quarterly operating revenue dropped by 4.5% compared to the same period a year earlier, when Lee earned $211.8 million. The company’s digital growth could not offset losses on the print side, where revenue dropped to $147 million from $164.7 million.
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Lee’s 77 newspapers include six in Iowa: the Quad-City Times, the Waterloo-Cedar Falls Courier, the Sioux City Journal, the Mason City Globe Gazette, the Council Bluffs Nonpareil and the Muscatine Journal.
Its holdings span the nation and include the St. Louis Post-Dispatch, the Richmond, Virginia Times-Dispatch, The Buffalo, New York, News and most of the daily newspapers in Nebraska, including the Omaha World Herald. Lee bought the Nebraska papers and dozens of others from Warren Buffett’s Berkshire Hathaway in 2020.
Buffett’s company remains the largest holder of Lee’s debt. Buffett said at the time of the sale that he believed Lee would be the best steward for the papers and their community coverage. He has not commented on Alden’s bid.
After purchasing Tribune Publishing last year for $633 million, Alden owns more than 100 newspapers, including the Chicago Tribune, the Baltimore Sun and the Orlando Sentinel. NPR reported that the company has a reputation for squeezing out short-term profits at the cost of long-term success, with the News Guild union reporting that Alden cut an average of 75% of positions at Guild-affiliated newsrooms.
Tyler Jett covers jobs and the economy for the Des Moines Register. Reach him at [email protected], 515-284-8215, or on Twitter at @LetsJett.
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