It's a puzzling shelf registration statement that Gannett filed early today with the U.S. Securities and Exchange Commission. The filing follows six consecutive days of rising Gannett shares at unusually high sales volume. Yesterday: 27 million shares traded hands vs. the 9.4 million daily average. Over the past five trading sessions, Gannett's stock has now climbed 40% vs. just 5% for the S&P 500 index.
Today, I've been lingering over several sections where the text is especially interesting:
Authorized capitalization
The text I'm focused on: "As of the date of this prospectus, our capital structure consists of 800,000,000 authorized shares of common stock, par value $1.00 per share, and 2,000,000 shares of undesignated preferred stock, par value $1.00 per share. As of March 29, 2009, an aggregate of 232,435,091 shares of our common stock were issued and outstanding, and no shares of preferred stock were issued and outstanding."
Preferred stock
How much of this is just legal boiler-plate -- and how much is new? I can't tell. The text:
"No shares of our preferred stock are currently outstanding. Under our charter, our board of directors, without further action by our stockholders, is authorized to issue up to 2,000,000 shares of preferred stock in one or more classes or series. The board may fix or alter the rights, preferences and privileges of the preferred stock, along with any limitations or restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each class or series of preferred stock. The preferred stock could have voting or conversion rights that could adversely affect the voting power or other rights of holders of our common stock. The issuance of preferred stock could also have the effect, under certain circumstances, of delaying, deferring or preventing a change of control of our company." (Emphasis added.)
Has someone now got 15%?
More interesting stuff: "In general, Section 203 defines an 'interested stockholder' as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation, or who beneficially owns 15% or more of the outstanding voting stock of the corporation at anytime within a three year period immediately prior to the date of determining whether such person is an interested stockholder, and any entity or person affiliated with or controlling or controlled by any of these entities or persons."
Bottom line: Is GCI reaffirming, adding or bolstering a poison pill?
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Nope. I think what it is doing is preparing to try and pay off some bond-holders with non-voting preferred shares. The advantage of preferred is that you can adjust the interest rate. So you are a bonbholder with notes carrying a 6 percent rate. GCI just failed to get these bonds back by offering a 3 percent extra dividend. Now, I think, corporate wants to give them preferred with say a 12 percent interest rate. It helps eliminates the debt. The alternative is reissuing new tranches of bonds, but at this point carrying 18 percent interest rates because corporate allowed the company's debt to fall to junk status. Trouble is, I don't think it is going to work. I think the bond-holders will want the 18 percent interest rate returns, not the dividend set on preferred shares. Corporate refuses to publicly acknowledge this, but it has a huge debt problem that will hit the Crystal Towers like a wrecking ball starting next year.
ReplyDeleteWhy would anyone buy GCI preferred stock? In the event GCI goes into bankruptcy, they are wiped out. At least with bonds, they would get a share of the remaining assets. After what we are still going through, financiers are going to want the most secured paper they can find.
ReplyDeleteI think 8:14 is right. Also: GCI has several very large stockholders -- investment firms -- that may want a sweetener for their losses and patience.
ReplyDeleteI agree with 8:14. The shelf offering is not a poison pill, otherwise they would have done that when the stock was under $2. This is to swap preferred for debt. The interesting thing was that less than a quarter of bondholders took GCI's deal to swap short-term notes for long-term ones. Gannett's got to push back that debt from maturing or big trouble happens.
ReplyDeleteAriel Investments might be the closest at around 12.5 percent. They've made a killing over the last two weeks.
ReplyDeleteJim,
ReplyDeleteThis is a boiler plate registration needed in order to redeem the debt being swapped out.
It is normally filed AFTER the exchange offer has been completed.
You will see a few more of these with the new issued bonds in teh next few days.
John Rogers the ceo of Ariel investments was on cnbc this morning and reported that gannett was a great buy at these beat up prices and the hosts were kind of puzzeled to what he knew that no one else knew in this dying industry .he seemed like he was in the money and knew something we dont ..
ReplyDeleteMy understanding is that the 2009 debt is already taken care of, and now they are trying to push the 2011 debt out. They've essentially taken bankruptcy off the table for the next two years. . . so long as they can keep funding operating expenses out of cash flow --which seems like they probably can.
ReplyDeleteEven so, cash on hand is pretty thin right now after providing for retiring the 2009 debt, so I wouldn't be overly surprised if they were trying to raise a little cash to have a cushion.
But yeah, I actually think the stock is a good buy here. . .for at least a couple more years. Nowhere near the $60+ high of course, but certainly well above the current $5.
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ReplyDeleteRe 1:02pm, for instance they had $649M cash on hand, but $563M was dedicated to paying off the 2009 notes. So only $86M cash after that, which is a bit thin for a company of this size.
ReplyDelete1:09 You see the problem. If they need about $600 million today to pay off notes carrying something in the order of 6 percent interest, they are going to need double that amount to pay off notes if they are negotiated at 12 percent. That extra $600 million needed will have to come from somewhere, and somehow I don't think it will be Dubow and Martore's salaries. Look around at what is happening at other companies, and you see companies like ConAgra were overscribed in buying back their notes early. Not GCI, which saw their early repurchase fail.
ReplyDelete"Has someone now got 15%?"
ReplyDeleteUgh.
Grammar still counts, Jimbo.